Deputy Commissioner of Taxation v Sangsoo Kim; Deputy Commissioner of Taxation v Inyoung Go

Category: Procedural rulings

Parties: Deputy Commissioner of Taxation (Plaintiff)
Sangsoo Kim (Defendant)
Inyoung Go (Defendant)

Representation: Counsel:
J Gatland (Plaintiff)
M J Wells (Defendants)
Solicitors:
Craddock Murray Neumann Lawyers (Plaintiff)
Bruce Collins, Tax Controversy Partners (Defendant)

File Number(s): 2024/00375069
2024/00374835

Publication restriction: Nil

JUDGMENT

1. The defendant in each of these proceedings has filed a Notice of Motion for leave to amend his or her Defence under s 64 of the Civil Procedure Act 2005 (NSW).

2. The plaintiff, the Deputy Commissioner of Taxation, opposes leave being granted to each of the defendants.

Background

3. The plaintiff has brought separate proceedings against each of the defendants under Division 269 of Schedule 1 to the Taxation Administration Act 1953 (Cth) to recover debts owed to the Commonwealth in respect of director penalties.

4. The defendants are the former directors of Divas Beverages Holdings Ltd (“the Company”).

5. Division 269 provides for the imposition of penalties on directors of non-complying companies. The purpose of Division 269, as set out in s 269-5, is to ensure that a company meets its obligation, relevantly, to pay PAYG withholding liabilities, or goes promptly into voluntary administration under the Corporations Act 2001 (Cth), or into liquidation. That purpose is achieved through imposing duties on directors, which are enforced by penalties. A penalty recovered under Division 269 is applied towards meeting the company's obligation.

6. On 17 May 2022, the plaintiff commenced proceedings in the County Court of Victoria against the respective defendants, Mr Sangsoo Kim (“Mr Kim”) and Ms Inyoung Go (“Ms Go”). The basis of liability of each defendant to the plaintiff is summarised at par (9) of the Statement of Claim:

“9. By reason of the foregoing:

(a) in respect of each Amount Withheld that had a Due Day on or after the date of the defendant’s appointment as a director:

(i) the defendant became liable to pay to the Commissioner a penalty, by force of subsection 269-20(1) in Schedule 1 to the TAA 1953, in respect of each Amount Withheld;

(ii) each penalty became due and payable, pursuant to subsection 269-20(2) in Schedule 1 to the TAA 1953, at the end of the Due Day of the relevant Amount Withheld; and

(iii) the amount of each penalty was, pursuant to subsection 269-20(5) in Schedule 1 to the TAA 1953, equal to the unpaid amount of the relevant Amount Withheld.

(b) in respect of each Amount Withheld that had a Due Day before the date of the defendant’s appointment as a director:

(i) the defendant became liable to pay to the Commissioner a penalty, by force of subsection 269-20(3) in Schedule 1 to the TAA 1953, in respect of each Amount Withheld;

(ii) each penalty became due and payable, pursuant to subsection 269-20(4) in Schedule 1 to the TAA 1953, at the end of the 30th day after the defendant’s appointment as a director; and

(iii) the amount of each penalty was, pursuant to subsection 269-20(5) in Schedule 1 to the TAA 1953, equal to the unpaid amount of the relevant Amount Withheld.”

7. On 23 May 2023 Mr Kim and Ms Go each filed Defences in the County Court of Victoria. Each defendant’s pleading in response to par (9) of the Statement of Claim was:

“11. As to paragraph 9 of the Amended Statement of Claim, the defendant denies that [he/she] is liable to pay the Commissioner a penalty as alleged or at all in respect of each Amount Withheld –

(a) because the defendant did not take part in the management of the company at any time when (he/she) was a director;

(b) because the First to Eighth Amounts Withheld (as those amounts are identified in the Amended Statement of Claim) have a due day before the date of the defendant’s appointment as a director;

(c) further or alternatively, based on the facts pleaded at paragraphs 12 to 18 herein, there were no reasonable steps the defendant could have taken to ensure that –

(i) the directors caused the company to comply with its obligations;

(ii) the directors caused an administrator of the company to be appointed under section 436A, 436B or 436C of the Corporations Act 2001 (Cth);

(iii) the directors caused a small business restructuring practitioner for the company to be appointed under section 453B of that Act;

(iv) the directors caused the company to begin to be wound up (within the meaning of that Act).”

8. On 21 July 2022, the plaintiff commenced proceedings against another director of the Company, Mr Jae Jang, in the Supreme Court of New South Wales.

9. On 24 May 2023, Mr Jang filed a Defence. There was no allegation in that Defence that he “took no part” in the management of the Company whilst he was a director.

10. On 13 August 2024, Mr Jang filed, by consent, an Amended Defence in which he denied that he was liable to pay any penalty and adding that he had taken all reasonable steps to ensure the directors caused the Company to comply with its obligations, and particularised those steps. Mr Jang also added a limitation defence.

11. On 4 October 2024, the Supreme Court of Victoria made orders removing the Kim and Go proceedings to this Court, pursuant to s 8(1)(b)(ii) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic).

12. On 10 October 2024, the plaintiff filed an Amended Statement of Claim in each of the Kim and Go proceedings in this Court.

13. On 20 December 2024, Mr Kim and Ms Go each filed a Notice of Motion together with supporting affidavits annexing their proposed Amended Defences in identical form.

14. On 7 February 2025, Registrar Hedge made orders by consent that the proceedings against Mr Kim, Ms Go, and Mr Jang be heard together, and that evidence in one proceeding be evidence in the other.

This application

15. The defendants’ proposed Amended Defences seek three principal amendments:

16. Adding a limitation defence under s 18 of the Limitation Act 1969 (NSW) (“the limitation defence”);

17. Adding the statutory defence under s 269-35(2)(a) of the Taxation Administration Act (“the all reasonable steps defence”); and

18. Deleting the statutory defence under s 269-35(2)(b) of the Taxation Administration Act (“the no reasonable steps defence”).

19. The unstated aspect necessitated by the application to amend is that each defendant would have to withdraw the assertions contained in each of their initial Defences that they “did not take part in the management of the Company at any time (he/she) was a director”.

20. It is the withdrawal of this assertion with which the plaintiff takes issue, asserting that the pleading in par (11(a)) was an admission and so to make the proposed amendments, the defendants need leave to withdraw the admission, not just leave to amend the Defence.

21. The defendants through their counsel, Mr Wells, contended that the amendment sought does not require withdrawal of an admission as no admissions were made. He argued, therefore, that no additional leave was required.

Limitation defence

19. In relation to the limitation defence, Mr Kim and Ms Go submit that they should be granted leave under s 64 of the Civil Procedure Act because the amendment is consistent with the dictates of justice (per s 58 of the Civil Procedure Act), because being in an “indistinguishable position” to Mr Jang as former directors of the Company, they can as a matter of law rely on the same limitation defence as pleaded by Mr Jang.

20. The plaintiff does not oppose the limitation defence amendment (save for the proposed pleading’s non-compliance with paragraph numbering requirements of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) r 19.5(4)).

21. I accept that leave should be given to plead that limitation defence.

“All reasonable steps” defence

22. In relation to the “all reasonable steps” defence, Mr Wells submitted that Mr Kim and Ms Go should be granted leave to amend their Defences for the following reasons:

23. The application has been made in a timely manner, soon after the removal of the proceedings against Mr Kim and Ms Go from the County Court of Victoria to this Court;

24. The amendment is for a proper purpose, being to facilitate the just, quick and cheap resolution of the real issues in dispute, consistent with the overriding purpose of the Civil Procedure Act set out in s 56 and the UCPR;

25. The amendment is in accordance with the dictates of justice (Civil Procedure Act, s 58), given that Mr Kim and Ms Go, who are in an “indistinguishable position” to Mr Jang as former directors of the Company, can rely on the same “all reasonable steps” defence as pleaded by Mr Jang in his Amended Defence in his proceedings, to which the Deputy Commissioner consented. Amending the defences in the proceedings against Mr Kim and Ms Go would therefore align the positions of all the defendants in the proceedings, which are being heard together;

26. The amendment is proper in substance and form, being properly pleaded and particularised; and

27. The amendment does not cause undue prejudice to the plaintiff having regard to the time and the manner of the amendment – it is done at an early stage of the proceedings, before any evidence has been prepared let alone served, and narrows the defences to the plaintiff’s claim.

28. Counsel for the plaintiff, Ms Gatland, submitted that Mr Kim and Ms Go, in seeking leave to add the “all reasonable steps” defence, and removing the previous assertions, are alleging facts on which a conclusionary pleading is made available under the Taxation Administration Act, Sch 1 Div 269, s 269-35(2)(a) that each of them had in fact taken all reasonable steps to bring the Company into compliance with its obligations. This is contrary to the initial pleading of taking no active part in the management of the Company, and that there were no reasonable steps available.

29. Ms Gatland submitted that the “all reasonable steps” defence is not adequately particularised, and is not put on the basis of being an alternative to the previously admitted fact that the defendants took no part in the management and that there were no reasonable steps they could have taken to make the Company meet its obligations. It is an entirely new and different defence now sought to be raised.

30. Ms Gatland explained that to make good an “all reasonable steps” defence as set out in Sch 1, s 269-35(4) of the Taxation Administration Act, the defendants must each establish that on the facts as they knew them at the time, they personally took all reasonable steps to have the Company comply with its obligations. Accordingly, they must plead what their state of knowledge was at the time, and precisely what steps they took. Ms Gatland argued that the proposed Amended Defences do neither of these things, and so the Commissioner has not been adequately informed of the nature of the case he is to meet: Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 at 219.

31. Finally, as Ms Gatland submitted, contrary to the defendants’ submission that including the “all reasonable steps” defence would improve the fairness and efficiency of the matter, allowing the “all reasonable steps” defence in its proposed form would be leaving the plaintiff to guess the factual basis upon which such a defence is brought: Banque Commerciale SA, In Liq v Ahkil Holdings Ltd (1990) 169 CLR 279 at 286, thereby increasing the time and expense involved in the preparation of an already complex set of proceedings: Bailey at 219.

Removal of the “no reasonable steps available” defence

27. Mr Wells submitted that all that the proposed amendments wish to do is to withdraw the facts asserted in the existing defences that are no longer pressed. He argued that to do so is not a withdrawal of an admission; just a refashioning of the legal arguments his clients now wish to pursue.

28. Ms Gatland submitted in reply that the asserted facts sought to be removed are admissions to matters that are adverse to the defendants and beneficial to the plaintiff. Those matters are beneficial to the plaintiff because the pleading in par (11(a)) would found an argument that Mr Kim and Ms Go must have been in dereliction of their obligations under the statute, because they took no steps at all to address their obligations.

Principles and the Uniform Civil Procedure Rules

29. Section 64(1) of the Civil Procedure Act provides that at any stage of the proceedings the Court may order that any document in the proceedings be amended, or that leave be granted to a party to amend any document in the proceedings. Section 64(2) provides that, subject to s 58, all necessary amendments to a document in the proceedings are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings.

30. The Court must also bear in mind ss 56-58 of the Civil Procedure Act, which require the Court to facilitate the just, quick and cheap resolution of the real issues in the proceedings (s 56), to manage proceedings in a just, efficient and timely fashion (s 57), and always follow the dictates of justice (s 58), here, relevantly, to the decision of whether to grant leave to file the proposed Amended Defences in the form sought.

31. Mr Wells submitted that the operation of those provisions in the Civil Procedure Act compels the Court to allow the amendment of the Defences because it will save the Court time at the hearing that all the defences being run are the same, and the proposed Amended Defences are reflective of the real issues in dispute.

32. Rule 12.6 of the UCPR provides for the withdrawal of a matter in a defence or subsequent pleading:

12.6 Withdrawal of matter in defence or subsequent pleading

(1) A party raising any matter in a defence or subsequent pleading may withdraw the matter at any time.

(2) Despite subrule (1), a party may not withdraw any admission, or any other matter that operates for the benefit of another party, except with the consent of the other party or by leave of the court.

(3) A withdrawal under this rule is to be made by filing a notice of withdrawal stating the extent of the withdrawal.

(4) If the withdrawal is by consent, the notice under subrule (3) must be accompanied by a notice from each party whose consent is required by subrule (2) to the effect that the party consents to the admission or other matter being withdrawn in accordance with the notice of withdrawal.

(Emphasis added.)

33. No application has been made by Mr Kim or Ms Go under r 12.6 because, Mr Wells submitted, the factual matter pleaded in par (11(a)) of their respective Defences is not an admission.

34. To illustrate what constitutes an “admission”, Mr Wells relied upon the decision of Schmidt AJ in Marahra Holdings Pty Limited v Insurance Australia Limited [2024] NSWSC 1368 (“Marahra”):

“[48] The word “admission” is not defined in the Rules or the Act. It must be approached in light of its ordinary meaning and the context in which it is used in the rules. That includes Parts 14 and 17, the latter providing both for admissions to be made voluntarily after service of a notice and their withdrawal, with the Court’s leave.

[49] Rule 14.26 deals with admissions made in pleadings, providing relevantly:

“(1) An allegation of fact made by a party in a pleading is taken to be admitted by any opposite party required to plead in response unless—

(a) in the pleading in response, the opposite party traverses the allegation, or

(b) a joinder of issues under rule 14.27 operates as a denial of the allegation.

(2) A traverse may be made by denial or by a statement of non-admission, either expressly or by necessary implication, and either generally or as to any particular allegation.”

…

[54] … in the Dictionary to the Evidence Act 1995 (NSW), ‘admission” is defined to mean a previous representation that is:

“(a) made by a person who is or becomes a party to a proceeding (including a defendant in a criminal proceeding), and

(b) adverse to the person’s interest in the outcome of the proceeding.”

…”

35. Ms Gatland submitted that the selective reference to Schmidt AJ’s conclusions in Marahra left out the following highly relevant paragraphs:

“[50] It follows that an admission can be made in many different ways. Before or after proceedings are commenced, in a conversation or written communication, for example. In a pleading or later served notice. In a witness statement, affidavit, oral evidence or even a submission.

[51] There was thus no issue that an admission may be made in a statement of claim, if a representation is there made which is adverse to the plaintiff’s interests.

[52] If admissions are made by a party, the Court may also “give any judgment or make any order to which the other party is entitled on the admissions.”: r17.7(1). That contrasts with r12.6(2), which precludes not only the withdrawal of admissions, but also the withdrawal of “any other matter that operates for the benefit of another party”, whether made “in pleadings or otherwise”, except with consent or by the Court’s leave.

[53] In this case, while Insurance Australia does not consent to the withdrawal of matters pleaded in the statement of claim which it has admitted, it has not suggested that r17.7 has been engaged. This reflects that the Rules do not contemplate that pleading a matter that merely “operates for the benefit of another party”, will entitle that party to have judgment given in their favour.”

36. Mr Wells also referred to the decision of Rees J in Quirk v Suncorp Portfolio Services Ltd in its capacity as trustee for the Suncorp Master Trust [2022] NSWSC 398 (“Quirk”), where her Honour stated in relation to the operation of r 12.6:

“[53] As observed in Ritchie’s Uniform Civil Procedure NSW at [12.6.5], the rule principally applies where a defendant either does not wish to contest the proceedings or does not wish to pursue a particular ground of defence. However, as rule 12.6(2), UCPR makes plain, where the matter sought to be withdrawn is either an admission or “any other matter that operates for the benefit of the other party”, the matter cannot be withdrawn without consent or leave of the Court.

[54] As to what an admission is, some basic rules of pleading warrant restatement. A pleading must contain only a summary of the material facts on which the party relies (rule 14.7) although may also raise a point of law (rule 14.19). An allegation of fact made by a party in a pleading is taken to be admitted by the opposite party unless traversed or there is a joinder of issues under rule 14.27: rule 14.26. Admissions may also be made in answer to a notice to admit. Such admissions can also be withdrawn by consent or with leave: rules 17.2 to 17.4. As the learned authors of Ritchie’s Uniform Civil Procedure NSW explain at [17.2.6]: (some citations omitted)

[17.2.6] Withdrawal of admissions

... The discretion to grant leave to withdraw a formal admission is stated in general terms. Its exercise therefore attracts the provisions of [the Civil Procedure Act 2005 (NSW)] ss 56–58 (ie,“overriding purpose” and “dictates of justice”): Jeans v Commonwealth Bank of Australia Ltd (2003) 204 ALR 327; [2003] FCAFC 309 ... at [18]–[19] ... Consistent with the potentially relevant factors mandated by those provisions, an applicant for leave must establish proper grounds for withdrawal of the admission ...

What constitutes proper grounds in any particular case will necessarily depend on the nature of the admission, the existence of a genuine dispute, and the stage of the proceedings when the application is made. It will ordinarily require explanation of the circumstances in which the admission was made and those relied on to justify the withdrawal ....

The same considerations apply where an admission in a defence is sought to be withdrawn: Nanevski at [187]-[193] and the authorities there cited.

[55] Whether, by an amended pleading, a party has withdrawn an admission may be the subject of argument of some subtlety. For example, in Matland Holdings, the amendments were not significant; any admission was acknowledged by the applicants’ counsel to be “difficult to define in some respects” and the respondents’ counsel did not “particularly mind if those words go back in”: at [49]. Kenny J proceeded on the basis, “Let it be assumed, for present purposes, that the amendments ... constituted the withdrawal of admissions.” Where the amendments were designed to state the respondents’ case more clearly than before and the applicants did not assert that they would suffer any prejudice by reason of the amendments, her Honour granted leave nunc pro tunc having regard to the “true object of pleadings”: at [48]-[52].”

37. Ms Gatland took the Court to the following helpfully illustrative paragraph of the same judgment:

“[61] Thus, in considering whether a defendant requires leave under rule 12.6(2), the following questions may assist:

(a) Did the defence, now sought to be amended, admit an allegation of fact or simply a legal argument or characterisation said to arise from facts elsewhere admitted or asserted by the defendant?

(b) Viewed objectively, is the defendant seeking to withdraw a matter which made it more likely that the plaintiff would succeed?

(c) Did the defence contain a concession in response to an allegation made by the plaintiff or make an assertion in support of an affirmative case?

In considering this matter, the Court will rely on a plain, objective reading of the pleadings. This may not be straightforward where the pleadings contain a mixture of factual allegations and legal conclusions or mixed questions of law and fact.”

38. Ms Gatland submitted that unlike the ultimate outcome in Quirk, in these proceedings the withdrawal of the matters asserted by each of the defendants does in fact operate as a withdrawal of a matter that would otherwise operate to the benefit of the plaintiff, and so should be considered to be an admission.

Consideration

39. I accept the submission of Ms Gatland that the matters sought to be removed from par (11) of the initial Defences are admissions. At the very least, they are concessions in response to allegations made by the plaintiff in par (9) of its Statements of Claim. There is a traversal implicit in the initial Defence that the defendants each are not liable to the plaintiff “because (he/she) did not take part in the management of the Company at any time (he/she) was a director” and/or alternatively there were no reasonable steps to be taken. The fact that this traversal may not succeed at trial or that another director, Mr Jang, took a different approach, does not mean that the matters stated in par (11(a)) were not admissions.

40. I reject the submission of Mr Wells that ss 56-58 militate towards granting the application on the basis that Mr Kim and Ms Go’s matters are to be heard with Mr Jang’s. Mr Kim and Ms Go initially pleaded that they took no active part in the management of the Company while they were directors. Mr Jang never made an assertion of that nature in his initial or Amended Defence. It is not correct to assert that the Court should allow an amendment to “align” the positions of directors in a company when that is not consistent with what the respective directors asserted in their initial Defences to be the truth.

41. If Mr Kim and Ms Go now wish to change their positions to withdraw the admissions they previously made, in order to facilitate a different position and approach to what they say they in fact did in respect of their tax obligations, they will need to make applications to do so under r 12.6 of the UCPR with appropriately verified explanations.

42. In the absence of such applications, Mr Kim and Ms Go’s applications to amend their Defences in the form sought must be rejected, other than with respect to the agreed amendment to allow the pleading of the limitation defence.

43. I also accept the submissions of Ms Gatland that the proposed “all reasonable steps” defence is not adequately particularised. That is an additional basis for rejecting those proposed amendments.

44. The motions are dismissed with costs.

Orders

45. I make the following orders in each proceeding:

46. Leave to file the proposed Amended Defence dated 13 August 2024 is refused.

47. The defendant has leave to file within 28 days an Amended Defence limited to pleading a defence under s 18(1) of the Limitation Act 1969 (NSW).

48. The defendant is to pay the plaintiff’s costs of the Notice of Motion.

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