Deputy Commissioner of Taxation v Lesley Frances Robertson [2009] NSWSC 597 | Case summary

Deputy Commissioner of Taxation v Lesley Frances Robertson [2009] NSWSC 597 | Case summary | Zoe

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JUDGMENT 1 HIS HONOUR: The plaintiff claims $211,708.91 from the defendant as penalties imposed under Part VI Div 9 of the Income Tax Assessment Act 1936 ("the ITAA") in relation to the non-payment by First Direct Private Security Pty Ltd ("the company") of PAYG deductions from the salary and wages of its employees. The plaintiff relies upon the fact that the defendant was a director of the company at the relevant time. The defendant denies that she was a director or says that if she was she has a defence to the claim for various reasons. The defendant's cross-claim against her former husband was abandoned and withdrawn. Background 2 According to the ASIC records the defendant was a director of the company for the period from 18 March 1999 to 17 February 2003. Under Div 12 in Schedule 1 to the Taxation Administration Act 1953 ("the TAA") the company was required to make PAYG deductions from salary and wages paid to its employees. Under Div 16 in Schedule 1 to the TAA, the company as a medium remitter was required to remit the amounts deducted to the Commission of Taxation on a monthly basis, usually by the end of the 21st day of the next month. Between 1 July 2002 and 31 October 2002 the company made PAYG deductions totalling $144,057 from its employees' salary and wages but did not pay the deductions to the Commissioner by the due date. 3 Part VI Div 9 of the ITAA imposes a duty on the directors of a company to ensure that the company either meets its obligation under Div 16 to remit each deduction made under Div 12 by the due date or takes other specified remedial action: s 222AOB. Non-compliance with the duty results in each director of the company being automatically "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). By operation of s 222AOB(3) the directors remain under an obligation to bring about compliance with s 222AOB(1) if that section is not complied with on or before the due date. 4 The Commissioner is not entitled to recover the penalty without giving written notice to the director setting out the "details of the unpaid amount of the liability" and the options available: s 222AOE. The penalty is then automatically remitted if the company meets its obligations or takes the other remedial action within 14 days after the notice is given: s 22AOG. The giving of a penalty notice is the last chance for a director to bring about compliance with s 222AOB and negate the liability for the penalty that arose on the due date: see Kolistasis v DCT [2005] NSWCA 186; 59 ATR 551 at [26]. 5 The TAA makes the amount of any penalty imposed by Part VI Div 9 of the ITAA a debt due to the Commonwealth payable to the Commissioner and provides that the amount may be recovered at the suit of the Deputy Commissioner in "a court of competent jurisdiction": s 255-5(2) of Schedule 1. The Commissioner alleges that he gave the defendant notice under s 222AOE dated 28 February 2003 before commencing the proceedings covering PAYG deductions made but not remitted by the company for the period from 1 July 2002 to 31 October 2002 in the amount of $144,057. The defendant did not comply with the notice. The Deputy Commissioner then commenced the present proceedings. Issues 6 Only the following three issues remain for determination by me: (1) Whether the plaintiff gave the defendant a notice pursuant to s 222AOE of the ITAA before commencing these proceedings ("the first issue").

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Q. And for how long did that situation exist? A. Well, until I moved out the place, I think when I moved out in 2001 or something like that, I think it was, and then - it was just a thing that a key was always on my key-ring, we never bothered at the time initially to get two keys, it was just - even now I believe she still now only has that one key. I'm not sure, but I think that's about right." 18 The evidence that Mr Griffin withheld legal documents from the defendant is not supportive of the defendant's case because the plaintiff needs only to establish delivery. That evidence is not inconsistent with delivery. However, the evidence is in my opinion a fabrication and Mr Griffin's denial of this should be rejected. The timing and content of the evidence suggests that it was lately contrived in aid of the amendment to the defence but it does not do so. Mr Griffin's credit is discussed in more detail later in these reasons. 19 There is other evidence to suggest that the defendant may have commenced to live at ** Bundeena Road, Glenning Valley from as early as mid-2000 as she asserts. For example, a letter to her at that address dated 9 July 2000 from a finance company and a rate notice to her at that address dated 11 June 2002 are annexed to her 7 October 2008 affidavit. The documents completed by her that are in exhibit L also suggest that she was living at that address between November 2001 and October 2002. Finally, in her taxation returns for the years ending 30 June 2001 and 30 June 2002 lodged on 10 September 2002 and 11 September 2002 respectively, which are annexed to the affidavit of Kalliani Sreedharan sworn 3 October 2008, the defendant's address is ** Bundeena Road, Glenning Valley. 20 By way of contrast, there is evidence that the defendant did not immediately relinquish her lease at her previous address. For example, documents produced by the Department of Housing, which were tendered as exhibit T, include copies of letters to the defendant dated 10 January 2002 and 10 April 2002 addressed to her at *** Banksia Street, Botany. A letter signed by the defendant and endorsed with a "received" stamp at the Department of Housing dated 18 March 2002 refers to the defendant returning the keys for *** Banksia Street, Botany. However, another document in the same exhibit lists the defendant's "current postal address" on 19 August 2002 as ** Bundeena Road, Glenning Valley. 21 The plaintiff's argument was as follows. Section 222AOE of the ITAA requires that notice be given to a director of a company who has become liable to pay an amount to the Commissioner under s 222AOC. The giving of a director penalty notice is a prerequisite to the Commissioner recovering the amount payable from the director. One method of service is provided by s 222AOF of the ITAA. However, that section is not the only way in which service of a notice may be effected: DCT v Keck [2006] NSWSC 677; 63 ATR 310; DCT v Meredith [2007] NSWCA 354; 69 ATR 876 at [65]. Section 222AOF(1) does not exclude or limit reliance upon s 28A of the Acts Interpretation Act 1901 ("the AIA"). That is said to be the point of the note to s 222AOF drawing attention to ss 28A and 29; see DCT v Meredith (supra) at [17]. Accordingly, where the Commissioner sent a notice by prepaid post to the address of the place of residence of the director, the notice would be deemed to have been given in accordance with ss 28A and 29 of the AIA where the address chosen met the description "last known" to the Commissioner. 22 Sections 28A and 29 of the AIA are as follows: " Section 28A

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(2) This section does not affect the operation of section 160 of the Evidence Act 1995. " 23 Section 28A applies "for the purposes of any Act that requires or permits a document to be served on a person, whether the expression 'serve', 'give' or 'send' or any other expression is used." The ITAA uses the word "gives" in s 222AOE with respect to the director penalty notice for which it provides. Section 28A therefore permitted a director penalty notice to be served "by sending it by pre-paid post to, the address of the place of residence or business of the person last known to the person serving the document." The person serving the document is the Commissioner, who acts through his officers: see O'Reilly v State Bank of Victoria [1983] HCA 47; (1983) 153 CLR 1. 24 With respect to the director penalty notice dated 28 February 2003 the facts relevant to s 28A are that it was sent by prepaid post to *** Banksia Street, Botany on 28 February 2003. The Commissioner knew that to be the defendant's address through a contemporaneous MASCOT extract search referred to in par [8] of Param Srikanthan's affidavit dated 4 January 2006 set out above. The Commissioner had previously used this address to send an earlier notice on 4 December 2002 and that letter had not been returned. The inference to be drawn from that fact, according to the plaintiff's submission, is that the notice "had found the defendant at that address." At the time that the Commissioner sent the notice the most recent income tax return lodged by the defendant on 11 September 2002 for the year ending 30 June 2002 showed a residential address of ** Bundeena Road, Glenning Valley. However, after lodgement of that return the defendant signed exhibit E which disclosed her address as *** Banksia Street, Botany. (This was what the plaintiff described as a reaffirmation of the address originally notified to ASIC in exhibit 1, a document lodged on 24 March 1999). That was the address that appeared in the contemporaneous MASCOT search extract and so was "the address of the place of residence [of the defendant] … last known to the person serving the document." The plaintiff submitted that it was a proper inference as at 28 February 2003, when the second penalty notice was sent, that *** Banksia Street, Botany was the address of the defendant's residence last known to the Commissioner. The address on the ASIC website was the most recent address of which the Commissioner had knowledge. It was sufficient for the Commissioner to have searched the database as the source of the address without referring to the return or notice from which the address had been extracted: see DCT v Nercessian [2006] NSWCA 268; (2006) 67 NSWLR 215. 25 Finally, evidence from the defendant of non-receipt of the notice would not displace the presumptions in ss 28A and 29. Proof of non-receipt is not proof of non-delivery: see Fancourt & Anor v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 and DCT v Gruber (1998) 43 NSWLR 271 at 277. In any event, the defendant adduced no evidence of non-delivery, as opposed to non-receipt. 26 The defendant contended that the address to which the notice was addressed was not her then current address. The defendant submits further that it was also not her address that was last known to the plaintiff. This was because of what was disclosed in the defendant's 2002 income tax return lodged on 11 September 2002, which showed her address as ** Bundeena Road, Glenning Valley. 27 The defendant reasoned as follows. When considering what is an address that is last known to the plaintiff, some work must be required of the word "known". It cannot be an address at which service can be effected under a different legislative provision regardless of whether or not it is the address of the defendant in fact. It must be known by the plaintiff that the person actually resides at that address at that particular time. A prior search of the ASIC database is insufficient because it will not reveal that the defendant actually resides at the address obtained in that fashion, being only a deeming provision. If it were otherwise there would have been no point in enacting s 222AOF. Secondly, because the search is a search of what amounts to no more than a summary of the documents that are referred to in the search, it will only show the position as at the date of lodgement of those documents. The defendant submitted that in the present case the date of lodgement of the source document referred to in the ASIC search was prior to 11 September 2002, which was the date of lodgement of the defendant's income tax return for the 2002 income tax year. 28 The first submission appears to misconstrue the effect of at least s 222AOF. The operative part of the section is contained in the words "an address that appears from such documents to be, or to have been within the last 7 days, the person's place of residence". The ASIC search gives the appearance that the defendant's address was *** Banksia Street, Botany as at the date of the search. Interestingly, the same ASIC search extract shows that the defendant ceased to be a director on 17 February 2003 or some ten days before the date of the search. The plaintiff was therefore not entitled to rely on s 222AOF(1) because it did not appear "from ASIC documents that [the defendant] is, or has been within the last 7 days, a director of the company." The plaintiff did not rely upon s 222AOF(1) for this reason. 29 The source document that founded the address in the ASIC search was lodged on 24 March 1999: see exhibit 1. Events had overtaken the information that it contained by the time the search was conducted on 27 February 2003. However, there was no disconformity between that source document and the details in the search extract. A search of the source document would have revealed the same address as the search of the extract. Indeed, a search of exhibits D and E, for example, would have produced the same result. In any event, as appears from Nercessian (supra), when the Commissioner sends a director penalty notice to a director at the address appearing in the ASIC database, that satisfies the requirements of s 222AOF notwithstanding that the Commissioner had not searched the return or notice from which the address was extracted. Santow JA at par [29] makes this clear: "[29] Moreover, when the interaction between the facultative provisions of either version of s222AOF are read with the provisions of (relevantly) s205B of the Corporations Act 2001 there is simply no warrant in the words of s222AOF to require the Commissioner to actually search beyond the MASCOT database. This must be so, even were such a search practicable. To require a search beyond the standard procedure of searching the relevant database (MASCOT or earlier ASCOT) would entail at the very least considerable inconvenience to the point of impracticability. What is the point of having a national ASIC database, accessible by remote search, if one must go to the original filed document?" 30 The defendant's complaint cannot therefore be that the plaintiff should not be entitled to choose as the address last known to the plaintiff an address that is in fact based upon what is or may be stale information. The defendant's argument is rather more focused upon what is meant by the critical words in s 28A(1)(a)(ii), which are "by leaving it at, or by sending it by pre-paid post to, the address of the place of residence or business of the person last known to the person serving the document". The competition is therefore between the address known to the plaintiff and contained in the defendant's income tax return lodged with the plaintiff on 11 September 2002 and the (out of date) information contained in the ASIC search conducted by the plaintiff within a single day of posting the director penalty notice on 28 February 2003 to the address so acquired. Rhetorically, why should the plaintiff be entitled to rely on the information assembled by a third party in preference to information provided directly to the plaintiff by the intended recipient of the notice? Implicitly, this argument emphasises that the words "last known to the person serving the document" must be read as "last known for a fact" or some cognate formulation, as opposed to "assumed" or "accepted" following a search of ASIC records, as in the present case.

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31 The defendant relied upon a decision of Tamberlin J in Drake v Stanton [1999] FCA 1635, which involved an interpretation of reg 16.01(1)(c) of the Bankruptcy Regulations, which provided that unless a contrary intention appears, where a document is required to be served on a person, the document may be left in an envelope marked with the person's name at the last known address of the person. The issue in the case turned on the words "the last known address of the person". At par [8] his Honour said this: "[8] In my view, on the language of reg 16.01(1)(c), the reference to 'last known address of the person' is to that address which has been made known by the applicant as at the time closest to the date in question." 32 According to the defendant, that decision supports the proposition that "made known by the applicant" means made known by the defendant in a document produced by her or on her behalf. That would make the 11 September 2002 income tax return the relevant document in this case rather than the ASIC extract, which was not "made known by" the defendant. 33 However, that argument disregards the fact that the state of the ASIC record is made known by the defendant to the extent that she did not take steps to correct it when she changed her address. The uncorrected state of the ASIC record meant that until corrected the defendant continued to make known her old address to the plaintiff which, when searched, became her address last known to the plaintiff. The defendant was no less able passively to make her address known, by choosing to do nothing or by neglecting to do anything, as she was able actively to do so. The defendant was in a category different to the hypothetical director contemplated by Patten AJ in DCT v Flanagan [2007] NSWSC 304; 66 ATR 293 at [37] when, with respect to s 222AOF, his Honour said the following: "[37] I cannot conceive that parliament would have intended that reliance could be placed upon an ASIC extract in relation to the residential address of a person who may have ceased to be a director months, or even years previously, and had neither the obligation nor the means to update the record." 34 The ASIC record revealed that the defendant had ceased to be a director some ten days previously. No submissions were made about whether or not she had either the obligation or the means to update the record. Conclusion on the first issue 35 In my opinion the plaintiff gave the defendant a notice pursuant to s 222AOE of the ITAA before commencing these proceedings. The second issue 36 The defendant relied upon evidence from herself and her former husband Dwayne Griffin, previously known as Norman Robertson. The defendant said that she resigned as a director of the company in about August or September 2001. She said that she had originally become a director of the company in early 1999 because her then husband was suffering from cardiac problems for which he was due to undergo surgery. At about this time he said to her, "Lesley, Scott [McClymont, who she knew to be their accountant] and I have decided to put your name down as a director of the company". He said, "[t]he company needs a second director whilst I am sick to sign cheques, you won't have to be involved in the day to day running as there is a manager." The defendant said that she understood her appointment as a director to be temporary and that others would look after the running of the business. She was told by her husband, "you may have to sign some cheques when I am not available to do so but if and when I get better you will no longer be required on the record." It is not in issue that the defendant was appointed as a director of the company in 1999. 37 The defendant said that she did not feel comfortable with this arrangement but agreed to it anyway because she had been assured that there would be no problem with it and that it was only a formality. Paragraphs 11 to 13 inclusive of her affidavit sworn 3 March 2008 are in the following terms: "11 In or about August 2001 Norman said to me words to the effect of 'You don't need to be a director of the Company anymore'. He then handed me a document which I signed so that I could be removed as a director of the Company. After signing the document I handed it back to Norman and he said to me words to the effect of 'I'll take this to Scott to look after'.

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Q. Yes please? A. This was the first time I've ever been business class, I went business class. And it's a silly thing, but I just didn't want to put "home duties" like I always do. I saw all these business people going on and I thought I'll put "director", being as I put that going out, I also had to put it coming back. It was a silly, stupid thing to do, but it was just that I wanted to feel important, that was all." 49 This is to be compared with what the defendant said in an affidavit sworn on 28 April 2005 at par 24 when she said, "I never thought it was such a big thing to be a Director and I still have no idea what one is supposed to do as a Director." It should also to be compared with similar declarations made by the defendant when leaving and returning to Australia on an overseas trip in 2001. The declarations completed by the defendant when departing on 6 October 2001 and when returning on 11 November 2001 in each case described her usual occupation as "home duties". The departure on this occasion was some three days after the defendant apparently signed exhibit D. 50 Exhibit C is the financial statement for the company for the financial year ended 30 June 2002. It is dated 25 March 2003. On page 21 of that document the defendant is listed as one of the directors in office since the start of the financial year to the date of the report. As previously discussed, the defendant's former husband gave evidence that he had personally attended on the company's accountant Mr Scott McClymont who had prepared a letter of resignation for the defendant to sign, and which she had signed, following which it was returned to Mr McClymont. That letter was never produced in evidence. If such a letter had been executed and put into effect by Mr McClymont it should have been reflected in the relevant entry listing the directors of the company in exhibit C for the financial year ended 30 June 2002. It did not do so. Mr McClymont was not called as a witness. The plaintiff not unexpectedly and with some force asserted that the inference was that Mr McClymont would not have assisted the defendant's case. The reliability of Mr Griffin is discussed elsewhere in these reasons. 51 Exhibit J is a letter dated 22 April 2003 written by Robert Peattie and Associates who according to the terms of the letter were solicitors instructed by Mr Griffin and the defendant. The opening paragraph of the letter was in these terms: "We have received instructions to act on behalf of Norman Robertson and his wife Lesley in respect to statements made concerning First Direct Private Security Pty Limited. We understand from our client that an accusation has been made that the Company was allowed to trade while insolvent." 52 The letter was addressed to Knights Insolvency Administration in response to an accusation that the company had been allowed to trade whilst insolvent. That allegation is to be found in exhibit K, a Circular to Creditors dated 9 April 2003, prepared by Knights Insolvency Administration in the following relevant terms: "Based on our investigations to date we consider that the directors may have continued to trade the Company whilst insolvent from at least December 2001". [Emphasis added] 53 The italicised word is obviously a reference to the directors of the company. The company records reveal that there were never more than two directors of the company and that they were the defendant and Mr Griffin. 54 The plaintiff contends that if the defendant had resigned as a director of the company in August 2001 it is surprising that this would not have been referred to in the letter from Mr Peattie. Alternatively, there would have been no need to defend her position in response to an allegation of insolvent trading in December 2001 if she had in fact resigned in August or September that year. 55 Exhibit S is a Notification to Change of Office Holders dated 20 February 2003 relating to the company and lodged with ASIC. It bears the signature of Norman Robertson in his capacity as a director above the handwritten date 17 February 2003. The body of the document records the defendant as having ceased to hold office as a director on that date. Mr Griffin agreed that he signed this document. It is in apparent conflict with what he and the defendant said about the defendant's resignation in 2001 when Mr Griffin said that he took the defendant's letter of resignation to Mr McClymont, as well as the content of exhibit C. Exhibit S stands alone and unexplained. 56 The defendant was also cross-examined about her evidence in the light of what was contained in some of her income tax returns. These returns were annexed to an affidavit of Kalliani Sreedharan sworn 3 October 2008 upon which the plaintiff relied. The defendant's 2000 tax return showed income of $50,000 as either salary or wages in the occupation of a company director. The defendant's 2001 tax return showed income of $31,200 as either salary or wages in the occupation of a company director together with $18,800 as director's fees. The defendant's 2002 tax return showed income of $52,000 as either salary or wages in the occupation of a company director. This is notwithstanding the defendant's contention that she ceased to be a director sometime in August or September 2001. 57 Some of the cross-examination of the defendant on that topic was as follows: "Q. You will see there that according to the records of the Commissioner your return for 2000 was lodged on 7 August 2001? A. Yes.

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Q. So do you remember whether this signing took place before or after your resignation? A. It would have been before. " 63 Without exception the cheques that make up exhibit U are drawn to cash. They are all either signed or apparently signed by the defendant. They range in date from 19 July 2001 to 18 December 2001. Despite the fact that the cheques are all cash cheques there are often several cheques that have the same date. The signatures on these cheques were not subjected to expert examination by Mr Dubedat or anyone else. Some of the cheques have notes on the reverse that appear to have been recorded by an officer or employee of the paying bank. For example, cheque number 104477 dated 3 September 2001 drawn payable to cash in the sum of $1,490 has the following notation: "Lesley Robertson OK to pay. Phoned at home 3/9/01. Norman K Robertson D/L 7729CF Exp. 19/4/05" 64 Another example of this is cheque number 104497 dated 12 September 2001 drawn payable to cash in the sum of $1111.82. The reverse side of the cheque contains the following notation: "Dup ok no. Allison J Robertson NSW D/L 11821562 Exp 07 11 02 Ph. Spoke to Lesley F Robertson ok'd Allison to cash chq" That cheque was also apparently counter-signed on the reverse side by "A Robertson". 65 The plaintiff points to the tension between the defendant's evidence about her signature of approximately 100 blank cheques in exhibit U and her expressed reasons for doing so, and the visit to the bank at Tuggerah to be removed as a signatory from the company's account. For example, the defendant had deposed in par [15] of her affidavit of 3 March 2008 to the following matters: "15. Towards the end of my Mother's visit to Australia I remember that she was not very well and so I decided to travel back with her to England. At about this time, because I was going to England, I said to Norman words to the effect of, 'I better do something about the bank as I won't be here to sign cheques.' I remember that it was a few days after signing the documents to resign as a director of the Company that Norman and I went to the St George Bank in Tuggerah. I remember we were served by a female staff member and I signed a document which I understood meant that I was no longer a signatory for the Company and that Norman could sign the cheques. I have not signed any cheques for the Company since this time." 66 When cross-examined the defendant gave the following evidence: "Q. You have given very precise details at paragraph 15 about going to the bank at Tuggerah? A. Tuggerah, yes.

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Q. What about the taxation department, which books did you show them? A. I don't know what the taxation got. I didn't show them anything. I have no dealing with the taxation department. I haven't seen any one from the taxation department." 78 In his 2 May 2005 affidavit Mr Griffin said this: "50. It is with regret that I must admit that during 1999 and 2001 I forged Lesley's signature on a number of documents. This was mainly for convenience and occurred when Lesley was not around or overseas for short periods visiting her mother in 1999 and 2000. I recall I purchased some cars and a BP fuel card using Lesley [sic] signature." Consideration The defendant's evidence 79 The only evidence that the defendant resigned as a director of the company in approximately September 2001 is the oral and affidavit evidence given by her and Mr Griffin, to the effect that she signed documents prepared by Mr McClymont and presented to her by Mr Griffin. The documents have never been sighted and Mr McClymont was not called to give evidence. 80 In contrast to this evidence, most of the documents that have been tendered support the plaintiff's contention that the defendant did not resign until February 2003. I find that the defendant signed exhibits D and E. I accept Mr Dubedat's evidence that the signatures on these documents are those of the defendant. I consider that the defendant's evidence that the signatures on those documents looked like her signature should be preferred to her latter day change of mind about it. I reject the evidence of Mr Griffin that he procured another person to sign these documents for the defendant (see below). I note that there is no evidence that the defendant signed exhibit G and that there is evidence that she did not. The question of when the defendant ceased to be a director of the company is not informed in any reliable way by exhibit G. 81 The Department of Immigration documents signed by the defendant are ambiguous. The 2001 documents in exhibit L support the defendant's case that she was by then not a director. The 2002 documents are to the opposite effect. The defendant's explanation that she described her usual occupation as a director because she was flying business class and wanted to feel important is on one view quite believable. However, the defendant was not without business acumen and experience and the attempts by her and Mr Griffin to portray the defendant as his malleable and innocent tool do not strike me as genuine. However, these documents contradict each other and no inference one way or the other can fairly or confidently be drawn from them in favour of either party. 82 Exhibit C is very strong evidence that the defendant was still a director for the financial year ended 30 June 2002. It says that she was. It is dated 23 March 2003, which is around the same time that Mr Griffin was apparently protesting to Mr McClymont that he should have effected the defendant's resignation as a director some years before. It is prepared by Mr McClymont of Mainstream Taxation & Accountancy Services "[o]n the basis of the information provided by the directors of [the company]". Mr McClymont did not incorporate the information said to have been given to him by Mr Griffin in the alleged conversation between them in February 2003. I find that that conversation never took place. Exhibit C supports the proposition that the defendant remained as a director at the end of the 2002 financial year and that she had not resigned in September 2001 as she contended. 83 I do not rely on exhibit J as supporting the plaintiff's contentions. The document is not the defendant's document. She never adopted it or what it asserted. It speaks in terms of "client" in the singular, notwithstanding the assertion that instructions to write it came from both Mr Griffin and the defendant. Exhibit K is also derivative of material that is not identified. If it relies on documents that are in evidence in these proceedings then the inferences that arise from those documents should be permitted to speak for themselves. 84 Exhibit S is a powerful piece of evidence. It is approximately contemporaneous with exhibit C. It was lodged with ASIC. It is presumably the document to which Mr Griffin referred at par [49] of his 2 May 2005 affidavit when he said, "[i]n any event Lesley was ultimately removed as a director early in 2003". The document wholly contradicts the combined version from the defendant and Mr Griffin about what they say occurred in September 2001. 85 The defendant's income tax returns are also inconsistent with her case. They describe her as a company director and her income is disclosed as having been received in that capacity. There is no evidence or suggestion that the defendant was a director of any other company. The same information that is contained in the taxation returns is mirrored in exhibit R. I reject the defendant's evidence that she was paid as an employee "after Christmas 2001, early 2002". 86 The evidence of cheques apparently signed in blank by the defendant is not wholly satisfactory. It is associated with the evidence about the defendant going to the bank to have her removed as a signatory to the company's cheque account. I have considerable difficulty accepting much of the evidence about these matters but only in a way that deprives me of any proper understanding of what actually occurred or what significance should be given to it. Principal among my concerns is the fact that the signatures on very many of the cheques that make up exhibit U do not appear to my inexpert and untrained eye to have been signed by the defendant at all. No expert report was obtained on this question, and the cheques were introduced into evidence at the last minute. I consider that the evidence about the cheques and the visit to the bank produces no inferences of any strength that assist in the resolution of the present issue and I do not rely upon it for any purpose. 87 I disbelieve the defendant about having been presented with or having signed documents giving effect to her resignation as a director of the company in or about September 2001. I do not do so on the basis that I was able to discern from her performance in the witness box that she was telling lies about these matters. I take account of the warnings and exhortations contained in cases such as Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at [31] as follows: "[31] Further, in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances. Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical." 88 I do so upon the basis that there are unexplained and inexplicable contrasts and contradictions of the defendant's contention that she resigned as a director that are contained in the documents to which I have referred. By way of comparison, the documents on which the defendant places reliance, such as the Department of Immigration records, point in two directions. In my opinion the defendant's evidence cannot stand, or at least cannot do so comfortably, with the inferences and direct facts that arise from exhibits C, D, E, R and S, and the defendant's income tax returns. Moreover, the unfortunate result of the evidence given by Mr Griffin is that it detracts from the defendant's evidence rather than supports it. Mr Griffin's evidence 89 In contrast to any assistance that is available to me solely from the defendant's demeanour, I have no doubt that Mr Griffin's evidence has been intentionally concocted by him in order to assist her in these proceedings. I have no confidence at all that anything said by him on a relevant and uncorroborated event can be believed. He struck me as willing to say anything at any time in response to questions that forced him to confront difficulties in the case for his former wife as he saw it. I have come to that view wholly accepting the force and binding effect of the wisdom patent in the passage from Fox v Percy (supra) quoted above. The most obvious manifestation of this is what appears to me to little more than a charade concerning the acquisition of the defendant's signature on a document, or perhaps two documents, in order to "remove" her as a director of the company. However, it is possible in my opinion to reach a similar conclusion about Mr Griffin's evidence on relevant matters without resort to the frailties of inferences and findings based solely upon demeanour. There are a number of examples of how this is so. 90 First, Mr Griffin was by his own admission happy to forge the defendant's signature on documents when it suited him. He showed little if any regard for the formalities of corporate administration. The significance of this is not that he was fraudulent or that his conduct was somehow reprehensible. It is that the apparent lengths he says he went to in order to have the defendant execute her resignation as a director show an uncharacteristic and incredible attention to detail not evident elsewhere. The clear and transparent reason for this would appear to be Mr Griffin's concern that the validity of the resignation, that both he and the defendant assert was effected, should not be impugned or invalidated by a defect in its execution. 91 Secondly, this approach is in obvious and relevant contrast to the one he took when arranging the execution of documents by others in the defendant's name. These documents were all documents that the defendant sought to rely upon to counter any contention that might be proffered by the plaintiff that they constituted an admission or recognition by the defendant that she was a director at the time they were signed. Exhibits D, E and G are in this category. I have found that exhibit G was not signed by the defendant but that exhibits D and E were. The underlying and illegitimate theme of Mr Griffin's evidence about these documents was that he arranged for them to be signed by others without the defendant's knowledge so that they could arguably not amount to evidence that she performed duties or functions as a director of the company after the time when she asserted that she had resigned. 92 Thirdly, much of Mr Griffin's evidence was on its face completely artificial and fabricated. The evidence about confronting Mr McClymont when told by him that he had never received the signed resignation is quite simply just silly. It was an obvious but clumsy attempt to make Mr McClymont appear to be both the reason why, and inferentially at fault because, that document was never lodged with ASIC or somehow otherwise put into effect. This follows from the awkward combination of Mr McClymont's alleged denial that he ever received the document and his later "concession" that he might have received it but probably lost it. Mr Griffin's assertion that the defendant subsequently signed another document to effect her resignation is equally incredible, particularly as the document has never been produced or otherwise verified. 93 Fourthly, and with particular relevance to Mr Griffin's evidence, Mr McClymont was never called to give evidence and there was not even a worthwhile attempt to explain his absence. He had been the accountant for the defendant and Mr Griffin or the company for some time. Mr Griffin said in par [28] of his 2 May 2005 affidavit that he and the defendant had known Mr McClymont "for approximately ten years" by 2001. He was closely involved in much of the company's affairs until at least March 2003 and could not be thought to be other than in the defendant's camp. I draw the inference that any evidence that could have been given by Mr McClymont would not have assisted the defendant's case in general or Mr Griffin's evidence in particular. 94 Fifthly, Mr Griffin admitted that he signed exhibit S on or about 17 February 2003. It was arguably not prepared with the assistance of Mr McClymont, as the form was out of date at the time, although Mr Griffin says Mr McClymont prepared it. It would certainly be somewhat curious if Mr McClymont had not been involved given what Mr Griffin describes Mr McClymont's role otherwise to have been with respect to the company at about that time and the dissatisfaction that Mr Griffin was expressing about Mr McClymont's performance concerning the resignation document that Mr Griffin said he gave him. Preparation of the document by Mr Griffin alone would certainly be inconsistent with the intended inference that Mr Griffin expected Mr McClymont to fix his mistake. In my opinion exhibit S was prepared without Mr McClymont's involvement. It recites that the defendant ceased to be a director of the company on 17 February 2003. It says nothing about the defendant having ceased to be a director in September 2001. That is material that alone casts all the rest of Mr Griffin's evidence on this topic into serious doubt. It is incompatible with any version of events from him that the defendant did not remain as a director of the company until 17 February 2003. 95 It is not clear what Mr Griffin says is the relationship between exhibit S and his evidence that a new document was prepared by Mr McClymont about which he allegedly said "I can't remember if Lesley signed it". That document is not in evidence but there would in any event have been no need for any other document to be prepared by Mr McClymont once Mr Griffin had lodged exhibit S. It is also not clear what Mr Griffin meant to convey in par [49] of his 2 May 2005 affidavit when he said, "[i]n any event Lesley was ultimately removed as a director early in 2003". That statement is ironically in accordance with exhibit S and is in terms in complete conflict with his evidence that the defendant had resigned in 2001. If exhibit S had been prepared to correct Mr McClymont's alleged failings in the past to lodge the appropriate documents from September 2001, it is remarkable, and unbelievable, that it did not record the September 2001 date as the date upon which the defendant ceased to hold office with the company. 96 Sixthly, exhibit R is also relevant. The document records in Mr Griffin's own handwriting the income received by the defendant as a director of the company until as late as 2002. That is inconsistent with the defendant having ceased to be a director in 2001. Even if the sums for directors' fees are calculated for the income tax year ending June 2002, it is difficult to accept that the whole of the sum of $52,000 allotted to the defendant was only for the period prior to September 2001. This is particularly so because the same amount is allotted to Mr Griffin for that income tax year. Furthermore, Mr Griffin's "explanation" that the defendant did not actually receive the money, and that it was in effect no more than an illegitimate entry in one of two sets of company books, can be discounted as false by reference to the fact that the defendant herself returned it as income for the relevant tax year. 97 Finally, and perhaps most fundamentally, if it were Mr Griffin's understanding that the defendant had resigned as a director of the company in September 2001, there would have been no need to "forge" her signature on anything. His discovery that the defendant was still a director was on Mr Griffin's evidence not made by him until 2003 when he had the conversation with Mr McClymont who allegedly told him that he never got the resignation document or might have lost it. According to Mr Griffin, this made him "a bit angry" at the time. This is presumably because he did not know it before then. If that is to be believed there can be no acceptable explanation of why Mr Griffin felt the need to use the defendant's signature on exhibit D on 3 October 2001 or on exhibit E on 16 December 2002 as he logically then remained unaware of what he would later discover to be Mr McClymont's alleged omission. It also flies in the face of the apparent importance or significance implicitly attributed by Mr Griffin to the formalities of the defendant's resignation as a director that led him to require her to sign the documents that he then allegedly returned to Mr McClymont "the following day". I completely reject Mr Griffin's attempts to explain these inconsistencies and contradictions, in particular those appearing in his evidence extracted at pars [72] and [73] above. I accept that exhibit G does not conform to this analysis. Conclusion on the second issue 98 In my opinion the defendant remained a director of the company from 18 March 1999 until at least 17 February 2003. The third issue 99 The defendant relies upon the defence provided by s 222AOJ(2) to the extent that she says that she did not take part in the management of the company "for some other good reason". The reason that the defendant proffers as a good reason is that she believed she had resigned as a director on August 2001: see par 5 of the further amended defence. Although a rejection of the defendant's case that she resigned as a director may intersect with her contention that she continued to have a reasonable belief that she had done so, it would not in every case entirely or necessarily foreclose upon the existence of such a belief. However, it does so in this case. 100 The defendant correctly contended that this defence does not arise for consideration unless she has failed on the first two issues. She submitted that her belief that she had resigned for the purposes of this argument is to be derived from the same evidence that supported her arguments on these other issues. The defendant submitted that her belief that she had resigned is demonstrated by her listing home duties as her occupation on the earlier immigration document in exhibit L within only months of when she said she resigned. The defendant submitted that a "belief that one has resigned must surely be a good reason for not participating in the management of the company for the purposes of s 222AOJ(2)." I am not satisfied that the defendant held such a belief or that she could have done so on reasonable grounds. 101 In Power v DCT (Qld District Court, 12 December 1995, unreported), referred to in DCT v Clark [2003] NSWCA 91; 52 ATR 526 at [49], Morley J made the following comments at pages 3-4 in relation to a defence under this section: "The elements of this defence are that Power, first, must specify some phenomenon, second, prove its existence, third, prove that he did not take part in Power Administration's management, fourth, that he did not do so when, in this case, the directors ought to have caused Power Administration's remittals to have been made, fifth, that his not having taken part was caused by the phenomenon, and, sixth, that that phenomenon was illness or some other good reason within the meaning of that expression in subs 222AOJ (2).

[189]

Illness has not been suggested to have existed. To be good the alleged reason must be that which would be concluded to have been so by the notional reasonable person's mind acting under appropriate directions about the nature of Power's director's duties and functions in and about the management of the company; so, to constitute a some other good reason the phenomenon particularised and proved to have been in existence must have the quality of justifying a director's not having participated in his or her company's management or of precluding or disabling her or him from so participating. That just stated is, in my judgment, the manifest legislative intent of the applicable legislation, but particularly of ss 222AOI and 222AOJ." 102 The reason advanced must objectively be a good reason. For example, a total failure to participate for whatever reason should not be regarded as a "good reason": DCT v Clark (supra). In determining what may be a good reason for not participating in the management of a company, regard must be had to the high standards of care and skill now required of directors. The plaintiff submitted that a director who by a course of conduct is inattentive to the affairs of the company is unlikely to have the benefit of this defence. For example, it would not be sufficient if the director held a genuine view that he or she had good reason for not participating unless it were a "good reason" when viewed objectively. 103 The plaintiff submitted further that if a director were careless or indifferent as to whether or not he or she had resigned it would be insufficient to constitute a "good reason" having regard to the standard of care now required of directors. A director is not entitled to hide behind ignorance of the company's affairs that is of his or her own making, including a failure to make reasonable inquiries: DCT v Clark (supra). The reason must be good in the sense of being not only "adequate" but also "valid" and "sound". 104 The defendant's 3 March 2008 affidavit contained the following: "5 Norman told me it was, 'not a big deal' and 'it was only for a little while'. He said to me words to the effect, 'signing on as a Director would not require any involvement in the day to day running of the Company as Maryanne [the manager] is there to run the Company anyway'.

[195]

[175] In my opinion, a director's non-participation in the management of a company at a particular time will be "because of illness or for some other good reason" within s.588FGB(5) of the Corporations Act only if the illness or other good reason is of this character, that is, such as to make the non-participation reasonable (on the appropriate standard) and thus not a breach of the director's duty to exercise reasonable care and diligence." 108 See also DCT v Green, Fenwick and Reardon (District Court of NSW, 17 June 2005, unreported) per Gibson DCJ at pars [67] and [88] and DCT v Bartolotta; DCT v Romeo (District Court of NSW, 8 May 2006, unreported) per Robison DCJ at pages 48 and 52. 109 As a general proposition I do not consider that a director's mistaken belief or understanding that he or she had resigned as a director could qualify as "some other good reason" for the purposes of s 222AOJ(2). Fundamentally resignation is an act of and by the director concerned. It is an act that by definition can only be performed by a director and in the director's capacity as such. It attracts the same degree of care and attention as all or any other acts performed by a company director during the currency of the directorship. The successful resignation of a director will have immediate consequences for the company and for the director concerned from the time that the resignation becomes effective. 110 The resignation of a director is governed by the constitution of the company, which usually allows for notice in writing to the company. The company's constitution was not in evidence before me and no reference was made to it during submissions. Section 203A of the Corporations Act 2001 provides that a director may resign by giving written notice to the company. The section applies as a replaceable rule - see s 135(1). Even if the company's constitution stipulates notice in writing, a director may resign verbally if the company accepts the resignation: Knight v Bulic (1994) 13 ACSR 553; Re Aero Marine Consulting Pty Ltd [2003] FCA 1016. Again, subject to the company's constitution, a director may resign at any time. 111 The plaintiff submitted that the defendant could not in the present case rely upon an ineffective resignation and that whatever the formal requirements for resignation may have been, the defendant could not assign ultimate responsibility for their performance or compliance with them to others. That proposition does not appear to me to be attended with significant controversy. However, in the particular circumstances of this case, it does not fall to be considered. This is because I do not accept that the defendant resigned as a director of the company prior to 17 February 2003. Her participation in a resignation, her knowledge of the formalities or otherwise required of her or of others in order to effect her resignation, and the extent of her reliance, if any, upon Mr Griffin and/or Mr McClymont in order to perfect it are not therefore matters that assume significance. 112 The defendant remained as a director and executed documents that were relevant to her personal affairs in a way that was inconsistent with a belief on her part that she had resigned. As I have indicated, the defendant was paid and returned as income the fees that she received from the company for the services she provided as a director. The defendant's evidence reveals that during the period that even she accepts she was a director, she did perform duties in her capacity as such. These included the signing of cheques and other documents. The defendant may have expressed reluctance to be a director and may neither have fully appreciated nor understood the extent of her role in the affairs of the company or the consequences of failing properly to attend to them, but she became a director nevertheless. The defendant remained a director of the company not because she failed to ensure an effective resignation despite a belief to the contrary but because she did not resign at all. Even if the defendant considered herself to be a sleeping director from a time when Mr Griffin's health permitted him to resume a more active role in the company's affairs, she was still a director. 113 In the light of the clear statements of principle in cases such as DCT v Clark (supra), the defendant cannot have had and did not have "some other good reason" for not taking part in the management of the company during the time that she was a director up to and including 17 February 2003. Conclusion on the third issue 114 The defendant is not entitled to rely upon a defence under s 222AOJ(2) of the ITAA. Orders 115 It follows that the defendant is liable to the plaintiff for the amount claimed. There should be a verdict for the plaintiff for that amount, subject to any variation of it since the date of the hearing. The question of costs also remains to be considered. 116 In the circumstances I will direct the parties to bring in short minutes of order that give effect to my reasons, including the question of costs if that issue is capable of agreement between them. If it is not, or if there are other matters that require further orders or elucidation that cannot be agreed, the matter should be listed before me by arrangement with my Associate at some time convenient to the parties and the Court.

Deputy Commissioner of Taxation v Lesley Frances Robertson

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Judgment (196 paragraphs)

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Cases Cited (17)

Cited By (4)