DEPUTY COMMISSIONER OF TAXATION v NERCESSIAN

DEPUTY COMMISSIONER OF TAXATION v NERCESSIAN - [2006] NSWCA 268 - NSWCA 2006 case summary — Zoe

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29 SEPTEMBER 2006 DEPUTY COMMISSIONER OF TAXATION v Raffie NERCESSIAN Judgment 1 MASON P: I agree with Santow JA. 2 SANTOW JA: INTRODUCTION The central issue in this appeal can be shortly stated. When by pre-paid post the Deputy Commissioner of Taxation ("DCT") sent default penalty notices to a director at his address appearing in ASIC's database ("MASCOT"), did this satisfy the statutory requirements for "giving" that person those notices pursuant to s222AOF of the Income Tax Assessment Act 1936 (Cth) ("ITAA"), notwithstanding that the Commissioner had not searched the return or notice from whence that address was extracted but only searched MASCOT? 3 The primary judge, Goldring DCJ, answered that question in the negative. His Honour did so in circumstances where: (a) there was no evidence as to the availability of such a return or notice for public search, (b) there was no evidence that had a search been possible of the return or notice it would have revealed any difference in address between it and what was disclosed by the MASCOT database, and (c) his conclusion was contrary to the determination of this point, though obiter, of Stein JA in Deputy Commissioner of Taxation v Gruber (1998) 43 NSWLR 271, concurred in by Powell JA and Sheppard A-JA. 4 The DCT, having obtained leave to appeal, challenges the primary judge's determination on these and other grounds. This appeal turns primarily upon the proper construction of the statutory scheme in the ITAA described below. 5 First some context. Where a company fails to remit monies due under its taxation obligations, penalties can be imposed by the Tax Commissioner on its directors, provided the statutory conditions in the Act are fulfilled. Upon the Commissioner giving 14 days notice to the relevant director pursuant to s222AOF ITAA, that director is rendered automatically "liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company's liability" pursuant to s222AOC(1). Section 222AOE provides that the Commission is not entitled to recover that penalty unless it has first given written notice to the directors setting out "details of the unpaid amount of the liability" and the options available. The penalty is then automatically remitted if the company meets its obligations or takes other remedial action within fourteen days after the notice is given; s222AOG. 6 Before commencing the recovery proceedings the subject of this appeal the DCT was required to give to the respondent director Raffie Nercessian three Director Penalty Notices ("DPN's"). The first was dated 2 August 2002 and the second and third 3 June 2003. These covered PAYG deductions made but not remitted by the company of which he was a director, CJN Enterprises Pty Ltd ("CJN"). 7 It is undisputed that the relevant officers of the ATO obtained the address to which the notices were posted solely from a MASCOT search of the ASIC database carried out within seven days prior to sending the DPN in each case. 8 The requirements for how notice "may" be given are laid down by s222AOF, which appears below, first in the form in which that provision appeared as at 2 August 2002 and then its later form as at 3 June 2003: INCOME TAX ASSESSMENT ACT 1936 - SECT 222AOF (as at 2 August 2002) 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.

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DISPOSITION 16 It was frankly acknowledged by the respondent that there was no evidence to indicate that the result of the MASCOT search would have been at variance with any return or notice filed with ASIC. The affidavits filed by ASIC's officers describe the searches that were done via ASIC's database, currently called MASCOT. There was nothing in those materials or from the respondent from which one could safely infer that there was any such variance. Thus in relation to the first DPN of 2 August 2002, as at 2 August 2002 that database showed the address of Raffie Nercessian as 46 Albany Street, Point Frederick, New South Wales 2250. The relevant reference is numbered OE6478842 and identifies a filed notice entitled "Notification of Change to Office holders of Australian Company". That is clear from the affidavit of Yuen Mei Bei an officer of ASIC and what appears under the heading "org extract" in the MASCOT database attached thereto (see under Tab 11). 17 The position of the two DPN's of 3 June 2002 is not materially different, according to the affidavit of the relevant ASIC officer-holder, David John Rowe. Thus Tab 12 contains an extract from the MASCOT database headed "Org Extract". Again, the opponent's address is shown as 46 Albany Street, Point Frederick, New South Wales 2250. 18 The definition of "ASIC document" in the earlier version of s222AAF described it as "a return" "lodged … under s242 or s335 of the Corporations Act 2001". 19 In the later version of s222AOF as at 3 June 2003 reference is again to "a return", this time "lodged … under s205B or s345 of the Corporations Act 2001". Those are the counterpart provisions to s242 and s335 of the Corporations Act 2001. 20 By reference: (a) to the legislative history, first of s242 and 335 of the Corporations Act and then to the later s205B and s345, and (b) to s10A of the Acts Interpretation Act, the appellant has demonstrated in its supplemental submissions that on and after 15 July 2001 only s205B and s345 are to be treated as incorporated by reference. This means that it is only s205B of the Corporations Act that is in practice relevant to either version of s222AOF and to the service of all three DPN's. For convenience, as it is uncontroversial, I have placed the relevant sequence of legislative provisions in an appendix to this judgment with the propositions which follow, essentially derived from the appellant's supplemental submissions. 21 Essentially s205B of the Corporations Act relevantly requires lodgement of a "notice" (no longer referred to as a "return" in contrast to the previous s242) of a new director with their "personal details" including "their address". Any change in those details must be lodged within 14 days. (As s345 deals with the lodgement of a company's annual return, it is not relevant for present purposes.) 22 The respondent contends that the provisions of s222AOF in either version are clear and unambiguous; that they make it mandatory for ASIC to have searched the relevant return or notice. This is said to be because "ASIC document" in s222AOF(2) is defined to mean "a return lodged …". The respondent submits that it is his residential or business address as recorded in that return that must be actually sighted by the Commissioner's staff within the seven days preceding the Commissioner forwarding the relevant notice by post for s222AOF to be satisfied; respondent's written submissions para 3. 23 But this proposition is clearly contrary to the conclusion reached by Stein JA in Gruber at 277, concurred in by both Powell JA and Sheppard AJA: "In so far as Graham A-J may have held that the relevant information in the Australian Securities Commission documents must "appear" to the Commissioner, that is that an officer of the appellant must personally sight the Australian Securities Commission documents, I am unable to agree. Such a construction has no foundation in the words of s 222AOF(1) nor in policy or logic. It reads words into the section without warrant.

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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." 24 Although those observations were dicta, since the conclusion reached was that the notices were invalid by reason of errors in the notices, I consider that this reasoning was clearly correct. 25 The primary judge also appears not to have appreciated that the facts, though not elaborated in the Court of Appeal judgment, were clearly enough stated in the judgment below. It was given by Graham AJ in Deputy Commissioner of Taxation v Gruber (1997) 14 FLR 322. He deals with the facts (at 335) under the heading "Were the notices given to the defendant?". 26 Thus it is clear that the Commissioner in Gruber as here did effect searches of the ASIC database. It happened to be known by the acronym ASCOT which was the predecessor database to MASCOT; but nothing hangs on that. These searches, in not extending to the return or notice, were said by Graham AJ as precluding the Commissioner from claiming the benefit of s222AOF(1) of the Act. In Gruber, the relevant ASCOT search had shown two different addresses for the defendant, without any indication that either was his place of residence or place of business. The Court of Appeal in Gruber reversed that element of his decision and dealt specifically with the searches. In particular Stein JA rejected Graham AJ's construction of s222AOF(1) (which required the Commissioner to look beyond the ASCOT database) in the passage quoted. 27 The primary judge (at [5]) declined to follow Stein JA's reasons, perhaps not appreciating that it was a unanimous decision as Powell JA also concurred (see errata in the official law reports). The primary judge explained that: "because of the omission to state fully the actual procedures followed in Gruber's case, I should confine this case to its facts, and it seems to me that what s222AOF(2) requires is that the officer actually search in the registry of the Australian Securities and Investments Commission and look at the actual return lodged by the taxpayer. I agree with Stein JA that this flies in the face of logic and the intention of a companies register, but nevertheless it is stated in the Act, an Act that gives many advantages to the Commissioner and it is a provision, which in my view requires strict compliance." 28 The actual procedures in Gruber were, contrary to what is said by the primary judge, perfectly clear from the judgment of Graham AJ and can be taken to have been well understood by the Court of Appeal, though not repeated. I respectfully observe that the primary judge should have adopted the same approach as McDougall J in Keck (supra) at [29]. There His Honour concluded that, while recognising this part of the reasoning in Gruber was obiter he "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". 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 But in any event, I consider that the definition of "ASIC document" as meaning "return" which is "lodged with the Australian Securities and Investments Commission" under the relevant section encompasses the relevant contents of such a return or notice when extracted onto an ASIC database and accessible to search in the ordinary course. That the current version of s205B refers to "notice" whereas its predecessor used the expression "return", but only until 9 December 1995, reinforces that interpretation; it demonstrates that no great emphasis should be placed on s222AOF's use of the word "return".

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An alternative mode of service? 32 It is therefore not necessary for me to resolve whether there was an alternative basis for the giving of notice and whether it was satisfied, by reference to the provisions of ss28A (and 29) of the Acts Interpretation Act 1901 (Cth). I observe however that in Kiff v Deputy Commissioner of Taxation [2005] QDC 456 Wall, QC DCJ concluded that not only was s222AOF satisfied though reference had only been made to the MASCOT database, but likewise service was validly effected in conformity with ss28A and 29 of the Acts Interpretation Act. McDougall J in Keck at [7], [16]-[20] reached much the same conclusion. However, as I explain below, there is a factual as well as legal dispute bearing on the application of s28A. While the legal aspects may be resolved in this appeal I do not consider the factual ones can be. 33 The appellant, in subsequent written submissions submits that s222AOF was: (a) not the exclusive means of identifying an address for valid service of a director penalty, and (b) that the requirements of s28A were satisfied in the circumstances. 34 I set out below the appellant's key propositions: (a) Section 222AOE Income Tax Assessment Act , 1936 (Cth) requires that notice be given to a director of a company who has become liable to pay an amount to the Commissioner under s222AOC. The giving of such a "director penalty notice" is a prerequisite to the Commissioner recovering from the director the amount payable. (b) Section 28A Acts Interpretation Act, 1901 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." [emphasis added]. The ITAA is such an Act - s222AOE uses the word "gives" with respect to the director penalty notice for which it provides. (c) Therefore, s28A Acts Interpretation Act, 1901 permitted a director penalty notice to be "served" by: "(ii) ….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…". (d) The " person serving the document " is the Commissioner, who acts through his officers: compare O'Reilly v State Bank of Victoria (1983) 153 CLR 1. (e) Reasons for concluding that the address used in all three cases was that "last known" to the Commissioner were not only the MASCOT search but also as set out in paras 5 to 7 of the written submissions, quoted below: "5.1. It was sent by prepaid post to 46 Albany Street, Point Frederick NSW on 2 August 2002 [affidavit of Ms Bei, Tab 11, paras 18 and 19 and Annexure G at p.23].

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It is a proper inference that as at 3 June 2003, when the second and third notices relevant to the appeal were sent, 46 Albany Street was, through the above circumstances, the address of Mr Nercessian's residence or business "last known" to the Commissioner. There was no evidence before the learned trial Judge that at any time from July 2002 there had come to the Commissioner's attention, through the knowledge of any officer, any indication that 46 Albany Street had ceased to be either the Opponent's residential or his business address." (f) Section 28A is applicable for the purposes of serving a director penalty notice " unless the contrary intention appears " in the ITAA. Section 222AOF is expressed in permissive terms as facilitating service upon an address ascertained in a particular way: " the Commissioner may give the person a notice under s.222AOE by…. sending it by post to, an address that appears… etc " [emphasis added]. There is nothing in s222AOF to indicate that the legislature intended this be the exclusive method of identifying an address appropriate for sending the Director Penalty Notice. No apparent legislative purpose would be served by limiting the manner of ascertaining an address for service in that way. (g) The "Note" to s222AOF reads as follows: "Note: Sections 28A and 29 of the Acts Interpretation Act, 1901 are also relevant to giving a notice under s222AOE". This note forms part of the Act: see ss950-100, Income Tax Assessment Act , 1997. That section states that, amongst other things, notes and examples that follow provisions of " this Act " form part of " this Act ". " This Act " is defined by s995-1 Income Tax Assessment Act , 1997 to include the Income Tax Assessment Act 1936. (h) The "Note", being part of the Act, makes it clear that s222AOF is not an exclusive means of identifying an address for valid service of a director penalty notice. 35 To this the respondent submits (paras 7 to 9 of its written submissions of 12 September 2006) that there was evidence which indicated that the DCT was aware, or at least on notice, that the MASCOT database address was not the last known place of residence of Raffie Nercessian. Thus at paras 7 and 8: "7. The first director penalty notice the subject of the original claim was posted by Ms. Yuen Mei Bei on 2 August 2002 (see paragraphs numbered 13-18 of her affidavit sworn 10 March 2005 - Document 11 of the White Folder). Ms. Bei relied upon a search of the ASIC database to obtain an address for the Opponent (see paragraph numbered 18). Ms. Bei gave evidence that before she had posted the said notice she understood the "last known address" for the Opponent was the address provided by the Opponent over the telephone on 12 July 2002 (see transcript of 15/9/05 at pages 20-22 and particularly page 22 at line 52 - Document 7 of the White Folder). Ms. Bei went on to state that she did not rely upon this "last known address" for the purposes of service of the director penalty notice but rather relied upon the "Mascot" update/address (see transcript of 15/9/05 at page 23).

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