CONSIDERATION
60 Mr Pedley, a chartered accountant, was involved in the original negotiation of the instalments payment arrangement with Stellar. He was exposed both to DPNs and to a writ in respect of that liability. It is regrettable that he did not make a request of the ATO in explicit terms to allocate Stellar's payments so as to relieve himself of liability under the DPN. While the ATO would not be bound to comply, and if it was thought likely that Stellar would default may be unlikely to comply, such a request could have been made. It was not.
61 Mr Pedley relies upon the fact that Mr Simpson gave evidence that had he received the communication from Mr Pedley on 23 December 2014 disputing the amounts that he would have contacted the taxpayer for more information as to what the problem was in order to explore the full nature of the complaint. Counsel for Mr Pedley argued that the fact that Mr Pedley was not contacted was the 'clearest way of identifying jurisdictional error in Mr Simpson's work'. I find this submission puzzling. It has not been pleaded or particularised at any point that Mr Simpson himself was in error in not making contact. Mr Simpson was speaking hypothetically when he said that, while he had never seen that document before (and it preceded his involvement), had he seen it he would have made contact with the taxpayer. It may not have changed his decision. I can see no possible basis for criticising Mr Simpson, who had not seen the document and was speculating as to what he would have done had he been in charge of the file at the time and seen the document. He did not come into the picture until some time later. If the submission was in fact intended to suggest there was some jurisdictional error on the part of the officer who was in charge of the file at the time by not making contact with Mr Pedley, that submission could not be accepted either.
62 It was submitted for Mr Pedley that Mr Simpson's affidavit was less than frank in exposing the fact that he had prepared the schedule of allocations as he made them; specifically, that they were 'misleading'. I have already indicated above that I reject this contention and my reasons for it. It reads far too much into the words of Mr Simpson's affidavit evidence.
63 Some criticism was apparently made of Mr Simpson's failure to record a contemporaneous entry on Siebel as to his computation reflected in MS-11, the Statement of Account which he constructed. I do not consider this reflects a failing on the part of Mr Simpson. The record he created was well after the relevant events and for the purposes of an historic assessment rather than a contemporaneous general account management.
64 It is significant, in my view, that the payment arrangement in respect of which there were rounded instalments, was an arrangement negotiated by Mr Pedley as the accountant and director of Stellar in early April 2014, following receipt of the statutory demand which required the payment of $776,210.88 of company debt. It is in that context that payments were made pursuant to the payment arrangement. There is no evidence from Mr Pedley at all that he concluded an arrangement, as he was entitled to attempt to negotiate, on behalf of Stellar under which the payments would be attributed to a specific debt. This may have been an unfortunate oversight, but it is too late now to blame the Commissioner for allocations made broadly in accordance with the Policy. It is obviously also unfortunate for Mr Pedley that his co-director, who is serving a term of imprisonment, is not shown to have had any capacity to assist in the debt reduction of Stellar. But that again is hardly the Commissioner's fault.
65 I note what was said by McWilliam AsJ in Deputy Commissioner v Caudle [2017] ACTSC 216 (at [71]):
The other amounts set out above were said to be incorrect due to misallocation of payments made, as a result of which the defendant contended those amounts ought to have been significantly reduced. However, the complete answer to that complaint is s 8AAZLA of the Act (set out above), which allows the Commissioner broad discretion as to allocation of payments made in 'the manner he or she determines'. The consequence of that section is that the allocation by the Commissioner of payments made to the running balance, rather than to debts on a chronological basis, does not amount to an error.
(Emphasis added.)
66 And in Deputy Commissioner of Taxation v Arora (2017) 106 ATR 257, Davies J said (at [38]):
It is convenient to deal with this second defence first. Under s 269-15 the directors have an obligation from the day when the company's obligation is due to the DCT to cause the company to comply with its obligation to forward the withholding tax or to pay the SGCs. Under s 269-20 if the money has not been paid and the director remains under the obligation, the director becomes liable to pay the DCT a penalty equal to the unpaid amount of the company's liability under its obligation. In that way, it cannot be of any relevance whether the money will ultimately be found in the liquidation to pay the amounts that were formerly due by the company. At the relevant time, the Defendant became liable for those amounts as a primary and principal debtor, subject only to obtaining the benefits described in ss 269-40 and 269-45. Accordingly, what is pleaded in this way as a defence to the claim is no defence at all.
67 At all times when the company payments were made, Mr Pedley was a director of Stellar and was undertaking negotiations with the Commissioner as to the payment arrangement. It was open to him at all times to request an allocation of the payments in a manner which was mutually beneficial to Stellar and to him personally. While it would have been open to the Commissioner to decline such a request or disregard a purported instruction, the simple fact is that, on any sensible reading of the communications, no such request was ever made. Moreover, and contrary to submissions for Mr Pedley, nothing else raised in the communications, or obvious in the communications, dictated that there be such an allocation. Further, regardless of the content of the Policy, it is clear that the Commissioner can disregard any such request by virtue of s 8AAZLE, which provides that in doing anything under Div 3 of Pt IIB of the TAA, 'the Commissioner is not required to take account of any instructions of any entity'. The evidence from the Commissioner is that three people have done the allocation, including the officer who made the allocation recorded on Siebel in January 2015. Mr Simpson subsequently looked at it afresh again and made the same allocation, including of payments made before he became involved in June or July 2015 and before he swore his affidavit of March 2016.
68 The communication of 23 December 2014 was a challenge to the amount of the writ. But that sum of $497,466 was reduced to $159,767.79, reflecting the fact that Mr Pedley's concern about payments not being taken into account was addressed. It was also taken into account by Mr Simpson when he did the further allocations. Although he did not know about Mr Pedley's concern he still brought to account the payments made by Stellar, allocating $213,907.90 in respect of the DPN debt. The discussions and the evidence about what he would have done had he received and become aware of such a communication was firmly academic. Mr Simpson, in his allocation, allocated $213,907.90 to the DPN, just as it was taken into account in the January 2015 calculation. That was reflected in the fact that the writ was issued for $159,767.69.
69 Mr Pedley cites Leeson v Leeson [1936] 2 KB 156, followed in various cases, for the proposition that if a debtor desires to appropriate payments in a particular way that need not be done in express terms but must be communicated to the creditor or be capable of being inferred. To constitute an appropriation there must be more than an undisclosed intention to appropriate; but as noted by Lockhart J in Re Walsh; Ex parte Deputy Commissioner of Taxation (NSW) (1982) 60 FLR 355, where his Honour said (at 357-358 quoting from Leeson per Greene LJ):
When, however, he does not notify the creditor of his intention, and when the circumstances are such that the creditor receives the payment merely in satisfaction of the debts and the payment is not more appropriate to the payment of the one debt than to that of the other the creditor is entitled to make the appropriation. When it is said that there need not be an express appropriation of a payment, but that the appropriation can be inferred, that does not mean that appropriation of a payment can be inferred from some undisclosed intention in the mind of the debtor. It is to be inferred from the circumstances of the case as known to both parties. Any other view might lead to injustice, as the creditor's right to appropriate a payment would be defeated. When the matter is examined upon principle it will be found that an undisclosed intention in the mind of the debtor is not sufficient to support an appropriation. If authority is needed for that proposition it can be found in the judgment of Lush J. in Parker v Guinness where he said: 'What is to be considered is this. Is the true inference to be drawn from all the circumstances of the case that the debtor paid the moneys generally on account, leaving the creditor to apply them as he thought fit, or is the true inference that he paid them on account of special portions of the debt for the purpose and with a view to wipe these out of the account? His undisclosed intention so to do would, of course, not benefit him. It is what he did in fact, and not what he meant to do that is to be regarded'. A debtor's undisclosed intention to appropriate a payment to one of two debts owed by him to a creditor cannot benefit him.
(Emphasis added, citations omitted.)
70 Mr Pedley argues that it may be inferred that the Commissioner was being told that Mr Pedley's parallel debt was being addressed by way of the company making payments. He stresses the content of the Policy, which reads:
Director penalty liabilities
Where a payment is received (in full or in part) in relation to a director penalty liability, you must allocate the payment to reduce the penalty on the director's account and corresponding parallel liability on the company's account. If the payment is for less than the full amount, it will reduce the penalty on the director's account, and will allocated against the company's earliest parallel liability. In accordance with the order of allocation (see Attachment C), parallel SGC liabilities will be cleared first and then PAYG withholding.
(Citations omitted.)
71 This, of course, begs the question as to whether payment was received expressly or by implication in relation to director penalty liability.
72 Mr Pedley did not at any time, including in the December 2014 communication, request a specific allocation or reallocation. There is no basis for a conclusion that the payments made under the general payment arrangement were intended to be made by Stellar for the benefit of reducing Mr Pedley's parallel liability, nor was any such request made at any time. The payments were made in order to reduce Stellar's debt.