Deputy Commissioner of Taxation v Keck & Anor [2006] NSWSC 677 | Case summary

11932/04 DEPUTY COMMISSIONER OF TAXATION v KLAUS ULRICH KECK & ANOR JUDGMENT 1 HIS HONOUR: The Income Tax Assessment Act 1936 (the ITA Act) imposes penalties on directors of companies that do not remit amounts of, among other things, group tax. The statutory scheme requires the directors of a company within certain times to do one of four things: to ensure that the company complies with its obligations; to make an agreement with the Commissioner in relation to those obligations; to appoint an administrator; or to ensure the commencement of the winding up of the company (if someone else does not do so): s 222AOB(3). Those obligations are continuing obligations: s 222AOB(3). 2 Where there is no compliance with s 222AOB on or before the due date for compliance, each director of the company at the time becomes liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company's liability: s 222AOC(1). The Commissioner may not recover the amount of that liability without giving 14 days' prior written notice: s 222AOE. 3 In the present case, the evidence demonstrates that Countryroad Freight Services Pty Ltd (in liquidation) (the company) failed to comply with its group tax obligations from about March 2001 until about October 2003. The amount currently owing, which is less than the total amount of those obligations because of payments that have been received from various sources, is $427,844.13. 4 In these proceedings, the plaintiff sues the defendants, the directors of the company at the relevant time, pursuant to the statutory scheme that I have described. It is the plaintiff's case that the notices under s 222AOE were posted to the defendants, at what was undoubtedly their residential address at the time, on 5 February 2004. It is the defendants' case that they never received those notices. 5 The plaintiff's evidence of the preparation and sending of the relevant notices comes from Mr Stan Skafidas, an officer in the employ of the Australian Taxation Office (ATO). Mr Skafidas' evidence is that he prepared the notices on 5 February 2004, together with covering letters, placed each letter and notice into an envelope addressed to the relevant defendant, and (having affixed postage stamps) personally posted those letters by placing them in an Australia Post box near to his place of work. 6 At one stage, it appeared to be suggested that Mr Skafidas did not have available to him the relevant business records that would enable him to recollect this transaction out of the many hundreds that he has handled before and since 5 February 2004. However, in circumstances of some confusion, there was produced an extract from the records of the ATO, which Mr Skafidas swore that he prepared in the ordinary course of his duties, that corroborated in detail the evidence that he gave of preparing and posting the notices with their covering letters. In those circumstances, although the way in which the document came to light is somewhat obscure and the fact that it was not provided to the defendants' legal representatives is regrettable, I accept Mr Skafidas' evidence that the relevant notices were posted in the way that I have described. 7 Section 222AOF deals with the topic of "how notice [under s 222AOE] may be given". In substance, s 222AOF(1) gives the Commissioner the opportunity of giving a notice by, among other things, posting it to the place of residence or business of the addressee as that appears from ASIC documents. This section provides, relevantly, as follows: "How notice may be given (1) 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 leaving it at, or 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 or business .

(a) affects the operation of any other law of the Commonwealth, or any law of a State or Territory, that authorizes the service of a document otherwise than as provided in that subsection; or affects the power of a court to authorize service of a document otherwise than as provided in that subsection; or … ." 15 For the defendants, Mr Marshall of counsel submitted that s 28A was of no assistance to the plaintiff in circumstances where she had chosen to rely on s 222AOF; and that compliance with s 222AOF(1) had not been shown because the document relied upon by Mr Skafidas to obtain the relevant address was not an "ASIC" document as defined in s 222AOF(2). Mr Marshall submitted further that in circumstances where the defendants had not in fact received the relevant notices, they should not be taken to have been "given". 16 In my view, s 222AOF is not exclusive of the ways in which notice may be served or given. That is manifestly so, at least in relation to personal service. The section says nothing about personal service; yet it would be an absurdity to conclude that the legislature, in saying what it did in s 222AOF(1), intended to exclude the giving of notice by personal service. 17 On examination, I think, s 222AOF(1) does two things. Firstly, it confirms that the Commissioner may give a director of a company, to which Pt 6 Div 9 applies, a notice under s 222AOE. Secondly, it provides that where the Commissioner wishes to do so, he or she may do so in the manner set out in the subsection. In other words, the relevant portion of the subsection should be read as if it said, "The Commissioner may give the person a notice under s 222AOE and may do so by leaving it at, or sending it by post to" the specified address. 18 So construed, the section authorises the Commissioner to have recourse to an ASIC document to obtain a director's address, and to use the address so obtained for the purpose of giving the director a notice under s 222AOE. But it does not prevent the Commissioner from using other means to give a person such a notice; nor does it restrict the use of other means to those that do not include the use of the post. 19 If the submission for the defendant were correct, it would not be open to the Commissioner to give a director a notice under s 222AOE by leaving it at, or sending it by post to, the place of residence of the director in circumstances where that place of residence was personally known to the Commissioner (or to the relevant employee) - perhaps through visits in an attempt to negotiate a solution - rather than "known" simply by having been obtained from an ASIC document. I find it difficult to believe that the legislature, in enacting what is on any view a facultative rather than a prescriptive requirement, should be taken impliedly to have prohibited the giving of notice in such a way. But (as Mr Marshall accepted in argument) it is a necessary consequence of the defendants' submission on this point that this should be so. 20 I therefore conclude that s 222AOF(1) does not in any way exclude, or limit reliance upon, s 28A of the Acts Interpretation Act. Thus, where the Commissioner sends a notice by prepaid post to the address of the place of residence of the director (to paraphrase and apply, in the circumstances of s 222AOE, the language of s 28A), that notice would be deemed to have been given in accordance with ss 28A and 29 where the address so chosen meets the description "last known to" the Commissioner. 21 In the present case, as I have said, the relevant officer of the ATO obtained the address from ASIC records. There seems to be no doubt, and I find, that that officer relied upon the information so obtained to form the view that the address to which he sent the notices with their covering letters was in fact the current residential address of the defendants. The evidence shows that (if it be relevant) he was correct so to conclude. 22 In those circumstances, I find that the Commissioner (or in this case the plaintiff) did give each of the defendants notice in accordance with s 222AOE. 23 It is therefore unnecessary to consider the alternative basis on which, in respect of this argument, Mr Rodionoff puts the plaintiff's case. Nonetheless, when one combines the legislative scheme under the Corporations Act relating to the provision to ASIC of names and addresses of directors, and the provision by ASIC of information from its records, I would conclude (were it necessary to do so) that the relevant information has been shown to be information that "appears" from an ASIC document. 24 Section 205B of the Corporations Act requires companies to lodge with ASIC, among other things, the names and addresses of their directors and to lodge information as to changes in those details. In the present case, the material obtained from ASIC, and said by ASIC to have been prepared under s 1274B of the Corporations Act, is said to have been prepared "from the national database". Were it necessary to do so, I would infer that the information set out in the extract is information prepared by ASIC showing details, as to the addresses of the defendants, from the latest versions of the relevant returns under s 205B. 25 In those circumstances, I think, it would be open to me to conclude (were it necessary for me to do so) that the information thus "appears" from ASIC documents for the purpose of s 222AOF(1). In this context, I think, whether or not information "appears" from documents lodged with ASIC is a question of fact to be decided, if necessary by way of inference, from all the relevant information. 26 I am comforted in this approach by the decision in Deputy Commissioner of Taxation v Gruber (1998) 43 NSWLR 271. In that case, Stein JA (with whom Powell JA and Sheppard AJA agreed) said at 277 that material might "appear" from documents lodged with ASIC where online service, being company extracts from the ASIC database, so indicated. His Honour said: " It seems to me that it did "appear" from the documents lodged with the Australian Securities Commission that the respondent was a director of the company and that 157 Fullers Road was his place of residence as at the date of each notice. I do not see why the on-line search (ASCOT) of the Australian Securities Commission documents, which are company extracts from the Australian Securities Commission data base, is not sufficient. Further, the fact that the documents also showed another address does not detract from the compliance with the requirements of the section." 27 Thus, unless the fact of non receipt provides a defence, the plaintiff must succeed. 28 Section 222AOE requires the Commissioner to give a relevant notice. The decision in Gruber, to which I have referred, makes it plain that a document is not to be taken not to have been given simply because there is evidence of non receipt. Stein JA dealt with this question at 277 (in factual circumstances where the address to which the notices in that case were sent was not the residential address of the director, although it was shown as such in the relevant ASIC record). His Honour referred with approval to the decision of Lee J in Deputy Commissioner of Taxation v Taylor [1983] 2 NSWLR 139, 143 where his Honour said of the fact that service other than personal service was permitted, that "ordinarily ... service will be complete when the requirements stipulated for service have been fulfilled". Thus, Stein JA said, "proof of non-receipt is not proof of non-delivery". His Honour referred to the decision of the High Court in Fancourt v Mercantile Credits Limited (1983) 154 CLR 87 at 96 to 97. 29 Mr Marshall submitted, correctly, that this aspect of the decision in Gruber was obiter only, because having regard to the way in which the appeal was ultimately dealt with, what Stein JA said as service did not form part of the reason for decision. However, I think that I should be slow to ignore considered statements, even by way of obiter dicta, of the Court of Appeal on legislation that is directly in point. 30 Mr Marshall submitted further that in one respect the decision in Gruber had been disapproved: referring to Deputy Federal Commissioner of Taxation v Woodhams (1999) 199 CLR 370, 385 [39]. The particular aspect of the decision that the High Court said should be overruled was not the aspect with which I am concerned, and I do not think that the fact of their Honours' disapproval of that particular aspect gives me any greater liberty than otherwise I might have had to ignore what are, as I have said, considered observations of the Court of Appeal. 31 In the present case, the plaintiff's evidence showed that documents that were not delivered by post were, in some circumstances, returned. That evidence came, once again, from Mr Skafidas. He said that where documents were returned undelivered, the practice within the ATO was that they would come to the attention of the person who had dispatched them. He said that the notices and covering letters in the present case had not come to his attention in that way, and opined that, therefore, they had not been returned. 32 There may be a question that remains open for the debate of the effect of statutory presumptions, or facultative provisions, such as ss 222AOF and 28A, in circumstances where the document that might otherwise be deemed or presumed to have been served, or given, is in fact returned to the person seeking to serve or give it before some relevant time limit expires. That question was left open by the High Court in Fancourt, and will no doubt one day require consideration. Since it does not require consideration in the present case (simply because the evidence does not give rise to the question), I do not think that there is anything to be gained by my considering it in a vacuum. 33 I therefore conclude that the circumstance of non receipt does not, on the facts of this case, afford the defendants a defence. 34 It follows that the defendants have not complied with the requirements of the s 222AOE notices that were given to them, within the time limited by those notices. Although the company was placed under external administration, and has now been put into liquidation, those steps were taken well after the expiry of the time limited by s 222AOE and the notices. It follows that the penalty imposed by s 222AOC is enforceable against each defendant, and that the plaintiff is entitled to judgment against each defendant in the agreed amount owing, after payments, of $427,844.13, together with interest thereon. 35 I will therefore direct the entry of judgment in the appropriate sum, and direct the parties to bring in an agreed calculation of the amount of the judgment, together with interest. That is to be done within seven days of today's date. 36 The plaintiff asks for her costs of the proceedings; alternatively for some part of those costs. The defendants oppose the plaintiff's having all her costs, in circumstances where (as I have already observed) one crucial document was not supplied to them. 37 It appears that the parties chose to deal with the question of discovery at least to some extent in an informal manner. On 31 January 2005, the defendants' legal advisers wrote to the plaintiff's representative requesting provision of the relevant parts of the ATO's file. The letter referred to some of the matters in the affidavit evidence for the plaintiff, which by then had been filed; and stated that, "It is important that my clients be assured of the extent of the documentation the ATO holds in relation to their case". 38 Documents were thereafter produced by way of "informal discovery" on 2 February 2005. The letter by which those documents were produced described the documents as "the taxation records of the defendants as they relate to [the company] and to the subject matter of these proceedings." The letter referred also to the affidavits that had been filed and said that between those two things, the plaintiff had given her, "informal discovery". 39 The documents thus produced included large numbers of instalment activity statements provided by the company to the ATO from time to time. They also included a number of pages of printouts of extracts from computerised file notes maintained by the ATO. The evidence showed that it was the practice of officers of the ATO, in relation to any matter of significance (including, for example, the preparation and sending of notices under s 222AOE) to make a record on the ATO's computer system. This was required to be done regularly, so that any officer assuming control of the file, could find out, by reading the record, what steps had been taken by his or her predecessors. 40 Further, and not surprisingly, the evidence showed that officers of the ATO relied on such records to refresh their recollection when (as in the present case) they were required to give evidence of steps taken by them. Mr Skafidas very properly conceded in cross-examination that, without reference to such records, he would not have been able to recall (for example) the precise details, of which he gave evidence, of the preparation and dispatch of the relevant notices. 41 However, the records thus sent "by way of informal discovery" did not include the crucial file note prepared by Mr Skafidas dealing with the preparation and dispatch of the notices that lay at the heart of these proceedings. The explanation given was that it was not Mr Skafidas but another officer of the ATO, who was requested by the Legal Branch to collate the documents for production by way of informal discovery. That officer did not apparently appreciate that the relevant notes relating to the preparation and dispatch of the notices would be in the precise part of the computerised file where in fact they were maintained. 42 Nonetheless, on 20 July 2005, that self same officer did access the computerised file and did print out the extracts from Mr Skafidas' notes dealing with the preparation and dispatch of the notices. For reasons that remained quite unexplored in the evidence, neither she nor the ATO's Legal Branch saw fit at that time to send the extracts to the defendants' lawyers, to supplement the informal discovery that had been given. 43 Thus, the defendants' case was prepared, and the cross-examination of Mr Skafidas undertaken, on the basis that the relevant computer records that should have been kept, and that should have put paid to any suggestion of deficiencies in Mr Skafidas' actual recollection, were not available. When the relevant records were produced, and after they had been to some extent tested and found to be what they purported to be, this aspect of the defence was in fact dropped. 44 It is difficult to say what attitude the defendants would have taken had the relevant records been produced when they should have been (on 2 February 2005) or even when they were in fact accessed (on 20 July 2005). As I have noted, the defendants pleaded a defence based on s 1318 of the Corporations Act. That appeared to me, and I must say still appears to me, to be wholly misconceived. Section 1318(1) empowers the Court to relieve a person of the consequences, in civil proceedings, of "negligence, default, breach of trust or breach of duty" in some circumstances. It may be doubted whether s 1318 has any application at all in the context of the ITA Act; in particular, so far as s 222AOE is concerned, because there is a separate defence provided by s 222AOJ which has not been pleaded. But in any event, it is quite apparent that there is no relevant "negligence, default, breach of trust or breach of duty" to which s 1318, if otherwise applicable, could attach in the circumstances of this case. 45 In the ordinary way, a successful party in litigation is entitled to costs as part of the consequences of success: costs ordinarily follow the event. The Court, of course, has power to depart from that in an appropriate case. One circumstance in which the Court may depart from the ordinary order is where the conduct of the litigation, or its duration, has been delayed or expanded because of the way in which one party or another has behaved. 46 In the present case, I think, the plaintiff should have some part of her costs. To deny her costs, even from 2 February 2005 (which was the extent of Mr Marshall's submission on this point), would be an injustice in circumstances where there was an extant defence, required to go to trial, which was not pressed at trial. But to give her the whole of those costs, in circumstances where there was a clear breach of an obligation relating to informal discovery, and where the conduct of the litigation may well have been influenced had the obligation been complied with (as in fact it was influenced when the document was produced), would seem to me to be excessive. 47 There is no way in which one can do precise mathematical justice between parties in circumstances such as those that I have briefly described. Any attempt to reflect behaviour and conduct in costs orders is necessarily a matter of impression. The broad brush will sometimes cover less than it should, and on other occasions more. In the present case, I think, the appropriate order for costs is that the plaintiff should have the whole of her costs up until and including 2 February 2005 and one half of her costs thereafter. Accordingly, I order the defendants to pay the plaintiff's costs on that basis. 48 I order that the exhibits in these proceedings are to be retained for 28 days and thereafter retained or disposed of in accordance with the Rules.

Deputy Commissioner of Taxation v Keck & Anor

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