Kedwell v Deputy Commissioner of Taxation [2020] NSWCA 238 | Case summary

Court of Appeal (NSW)|2020-08-20|Before: Bell P, Basten JA, Payne JA

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] On 28 September 2017, the Deputy Commissioner of Taxation (the Commissioner) issued a Director Penalty Notice (DPN) to Nathan Kedwell (the appellant) in the amount of $384,301. The DPN identified the underlying liability to which the DPN related as being quarterly Pay as You Go (PAYG) amounts that Synergy HR (Aust) Pty Ltd (Synergy) had withheld and not remitted to the Commissioner for the periods commencing 1 October 2016 and 1 January 2017. The appellant was the sole director of Synergy. The DPN contained details on how payment could be made in satisfaction of the DPN, using the electronic funds transfer reference XXX 6660. At that time, Synergy had a Running Balance Account (RBA) debt of $1,109,811 to the Commissioner. Many of the amounts the subject of this debt accrued prior to the underlying liability to which the DPN related. The electronic funds transfer reference for payments made to Synergy's RBA was XXX 3860. On four separate occasions between 20 October 2017 and 23 January 2018, the appellant made payments to the Commissioner totalling $380,000 using a different electronic funds transfer reference than XXX 6660, being the electronic funds transfer reference for payment of the DPN. The payments were made by transfer from Minerva BPO Pty Ltd (Minerva) to Synergy and then to the Commissioner. The appellant was the sole director of Minerva. The payments were applied by the Commissioner to Synergy's RBA towards debts which accrued prior to the underlying liability to which the DPN related. There were two issues on appeal. First, whether in response to the DPN, which was in the amount of $384,301, the appellant paid the Commissioner $385,000 and the Commissioner received that amount in satisfaction of the DPN thereby extinguishing the liability created by the DPN. Second, whether, by reason of what was said to be a representation made by an officer of the ATO in a telephone call with the appellant on 23 January 2018, an estoppel arose precluding the Commissioner from recovering the amount of the DPN liability. The Court held, dismissing the appeal: per Payne JA (Bell P and Basten JA agreeing):

Payment defence

The evidence led by the appellant did not establish a loan agreement between Minerva and the appellant: [55]. Sporadic payments by Minerva to Synergy over the course of four months, without more, do not evidence a loan agreement: [53]. Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61, considered. Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110, applied.
The payments made to the Commissioner were made by Synergy and Minerva in discharge of Synergy's RBA debts, without the appellant, Synergy or Minerva giving a direction to the Commissioner that the funds should be applied to the appellant's DPN liability: [58].
The appellant caused each of the payments to be made using an electronic funds transfer reference for Synergy and did not use the electronic funds transfer reference he was given in the DPN for payment of his DPN liability: [60].
Applying s 8AAZLE of the Taxation Administration Act 1953 (Cth), the Commissioner was not bound by any instructions given to him on behalf of Synergy about how those payments were to be allocated in payment of Synergy's debts: [62].
The appellant's evidence did not support a finding that there was any relevant error or mistake in the appellant's failure to seek that the four payments be allocated towards the appropriate liabilities: [68].

Estoppel defence 6. In the telephone call on 23 January 2018, there was no representation made by the ATO officer about the ATO's past or future conduct in relation to sums paid to Synergy's Running Balance Account: [74], [78]. 7. It was no part of the appellant's pleaded case, nor his evidence, that it was the ATO officer on the telephone call of 23 January 2018 who in fact allocated any payment to the appellant's DPN account: [80]. 8. Admissions made by the appellant and the contemporaneous documents establish clearly that the appellant did not rely on the representation allegedly made by the ATO representative on 23 January 2018: [82], [83]. There was no reliance by the appellant on the alleged representation: [84]. 9. None of the matters alleged by the appellant as constituting detriment was established: [86]. In respect to seeking to delay the proceedings, there is no evidence that the appellant contemplated attempting that outcome: [87]. The appellant was not prevented from seeking to recover Synergy's debts by reason of any alleged representation by the Commissioner: [88].

Judgment

BELL P: I have had the advantage of reviewing the reasons of Payne JA. His Honour explains with great clarity why the appeal was bound to fail. I agree with his Honour that the appeal must be dismissed with costs.
BASTEN JA: I agree with Payne JA.
PAYNE JA: On 31 October 2019, the primary judge, Gibson DCJ, gave judgment for the Deputy Commissioner of Taxation (the Commissioner), in the sum of $332,531.61 owing as a result of the non-payment of a Director Penalty Notice (DPN) issued by the Commissioner to Nathan Kedwell (the appellant): [2019] NSWDC 610. The DPN was issued in respect of amounts owing by Synergy HR (Aust) Pty Ltd (Synergy), ACN 604 859 001, to the Commissioner. The appellant was at that time the sole director of Synergy.
The two issues which arise on this appeal are: 1. whether in response to the DPN, which was in the amount of $384,301, the appellant paid the Commissioner $385,000 and the Commissioner received that amount in satisfaction of the DPN thereby extinguishing the liability created by the DPN (the payment defence); and 2. whether, if Synergy paid the Commissioner $385,000 in part satisfaction of its own taxation liabilities, an estoppel arose. The appellant submitted that the Commissioner was estopped from asserting the amount of $385,000 was received and allocated other than in satisfaction of liabilities the subject of the DPN (the estoppel defence).

Relevant facts

On 28 September 2017, the Commissioner issued a DPN to the appellant in the amount of $384,301. The DPN contained details of how payments could be made by the appellant in satisfaction of the DPN via electronic methods using the electronic funds transfer reference for payments XXX 6660. The DPN identified the underlying liability to which the DPN related as being quarterly PAYG amounts Synergy had withheld and not remitted to the Commissioner for the periods commencing 1 October 2016 and 1 January 2017.
On 28 September 2017, Synergy had a Running Balance Account (RBA) debt of $1,109,811.50 to the Commissioner, comprising amounts owing for Goods and Services Tax (GST) which Synergy had collected and not remitted to the Commissioner, PAYG amounts collected and not remitted to the Commissioner dating from 30 September 2015, income tax withholding amounts not remitted to the Commissioner, penalties for late lodgement of taxation returns and general interest charges. Many of the amounts the subject of this debt accrued prior to the underlying liability to which the DPN related, being quarterly PAYG amounts Synergy had withheld and not remitted to the Commissioner for the periods commencing 1 October 2016 and 1 January 2017. The electronic funds transfer reference for payments made to Synergy's RBA was XXX 3860.
On 20 October 2017, a payment of $200,000 was received by the Commissioner and applied to Synergy's RBA in part payment of Synergy's June 2016 GST liability, a debt which arose prior to the debts arising from the PAYG amounts Synergy had withheld and not remitted to the Commissioner for the periods commencing 1 October 2016 and 1 January 2017. The amount of $200,000 had been paid from the bank account of Minerva BPO Pty Ltd (Minerva) to Synergy's bank account on 19 October 2017. The appellant was also the sole director of Minerva. The description in Minerva's bank statement was "Shra Ato Dep 200K". The appellant agreed in cross-examination that the notation "shra" as part of "Shra Ato Dep 200K" denoted "Synergy HR (Aust) Pty Ltd".
The appellant gave evidence that the payment of $200,000 was made to the Commissioner using a different electronic funds transfer reference than XXX 6660, being the electronic funds transfer reference for payment of the DPN.
On 31 October 2017, the Commissioner issued a statutory demand to Synergy in the amount of $712,728.49.
On 1 November 2017, a payment of $85,000 was received by the Commissioner from Synergy and applied in part payment of Synergy's remaining June 2016 GST liability with the remainder applied to Synergy's December 2016 GST liability. The amount of $85,000 had been paid from Minerva's bank account to Synergy's bank account on 31 October 2017. The description in Minerva's bank statement was "Shr A Payment 85K". The appellant agreed in cross-examination that the notation "Shr A Payment" was a business record denoting "Synergy payment".
The appellant gave evidence that the payment of $85,000 to the Commissioner was made using a different electronic funds transfer reference than XXX 6660, being the electronic funds transfer reference for payment of the DPN.
On 8 November 2017, the appellant telephoned the Australian Taxation Office (ATO). A transcript of the call is in evidence. During the call, there was some discussion of the appellant seeking to make a "payment arrangement". The discussion of a "payment arrangement" related only to Synergy's debts; the appellant asked "who would I speak to about getting into a payment plan for that company?" (Emphasis added). There was no reference during that call to the appellant's DPN liability. No direction was given by the appellant that any payment made had been or should be allocated in payment of the appellant's DPN liability. The appellant, who was in Fiji, was placed on hold whilst the ATO officer spoke to a supervisor about the possibility of a payment arrangement being made. The call dropped out and the appellant made no attempt to re-establish contact. No payment arrangement was made.
On 13 November 2017, a payment of $30,000 was received by the Commissioner from Synergy and applied by the Commissioner to Synergy's RBA in payment of Synergy's December 2016 income tax withholding liability. The payment of $30,000 was paid from Minerva's bank account to Synergy's bank account on 10 November 2017. The description in Minerva's bank statement was "Shra Payment". The appellant agreed in cross-examination that the notation "Shra Payment" was a business record denoting "Synergy payment".
The appellant gave evidence that the payment of $30,000 was made using a different electronic funds transfer reference than XXX 6660, being the electronic funds transfer reference for payment of the DPN.
On 6 December 2017, the appellant telephoned the ATO for a second time. The appellant asserted in that call that he had earlier made a "payment arrangement" with the Commissioner regarding Synergy's debts. In cross-examination, the appellant accepted that no such payment arrangement had ever been made. The appellant did not mention his DPN in the course of that telephone conversation nor was any direction given by the appellant that any payment made had been or should be allocated in payment of his DPN liability.
On 19 January 2018, the appellant telephoned the ATO for a third time. During that conversation he again asserted that he had entered into a payment arrangement with the Commissioner on 8 November 2017 with respect to Synergy's debts. The appellant was told in plain terms that no payment plan had been agreed. In cross-examination the appellant accepted that no such payment arrangement had ever been made. Although the ATO representative referred to the existence of the DPN and its amount, no direction was given by the appellant that any payment made had been or should be allocated in payment of the appellant's DPN liability.
On 23 January 2018, a payment of $65,000 was received by the Commissioner from Minerva and applied to Synergy's RBA in part payment of Synergy's December 2016 GST liability. The payment was described in Minerva's bank statement as "Shra Payment" which the appellant accepted in cross-examination identified Synergy. The appellant gave evidence that the payment of $65,000 was made using a different electronic funds transfer reference than XXX 6660, being the electronic funds transfer reference for payment of the DPN.
On 23 January 2018, the appellant telephoned the ATO for a fourth time. The primary judge made the unchallenged finding at [33] that the statement of claim in this matter, which had been filed electronically on 11 January 2018, had been the subject of an attempt at service shortly before this conversation. The appellant raised the issue of the DPN liability and said "obviously it went to an old address, that's fine I appreciate I have got a copy of it now". The appellant said that "reading through the letter, it's a different BPAY code to resolve this matter". The appellant again asserted that in November 2017 he had made a "debt arrangement" with the ATO. After a general discussion between the appellant and the ATO officer about the ATO Practice Statement Law Administration 2011/20, which contains information about the order in which the Commissioner allocates payments received from taxpayers to outstanding debts, the appellant turned to his DPN liability and the statement of claim in the present matter. The relevant exchange was as follows: "Nathan Kedwell: I just had someone turn up at an old address of mine with a writ, I assume it's related to this and I thought it had been resolved so … ATO Representative: Okay, let's see. Nathan Kedwell: Sorry what's, what is, what's going to be, do you have, I don't have a copy of the writ. What's on the writ? I assume it's related to this? ATO Representative: I can double check that for you in a minute. Nathan Kedwell: Okay great thanks. So all up, not for the 5 that hasn't been recognised, its 285 plus 30, plus 65 its 380 and the total of these two is like 381 or something … ATO Representative: Okay so yeah it won't be very far off being paid in full. Nathan Kedwell: Nope. ATO Representative: Being paid in full. Nathan Kedwell: I paid 5 yesterday. My concern is that it hadn't been correctly applied and therefore they were continuing down the path in terms of the directors penalty notice. That's my concern. ATO Representative: Yeah so once we receive payment for this one we escalate to the accounts team and they do what is called a reconciliation and they credit any payments that have been made to the separate director penalty account. Nathan Kedwell: Okay, so it's a running balance? Can you see exactly, like I said I paid 5, is there like a thousand or two thousand outstanding on that separate account? ATO Representative: Okay so there is currently $3,223.46 left on the other one but if you have made a payment of $5,000, then that will cover it, so once that one clears we can then escalate that for reconciliation."
I will return to the significance of this matter below. At the conclusion of the conversation, after the discussion set out immediately above, the appellant was told the name and contact details of the Australian Government Solicitor (AGS) officer handling the appellant's DPN liability recovery proceedings and told that "everything now other than basic account explanation would go through that solicitor".
On 24 January 2018, the payment of $5,000 was received by the Commissioner from Minerva. This sum was allocated by the ATO to the appellant's DPN liability. This payment is not an issue in the current proceedings.
On 7 March 2018, in an email to the AGS officer, the appellant set out at some length his contemporaneous understanding of the matters central to this appeal. I will return to this email in detail when addressing the estoppel defence.

Decision of the primary judge

Her Honour was not satisfied that there was evidence capable of establishing a loan agreement made between Minerva and the appellant for any purpose, let alone for the purpose of discharging the appellant's DPN liability. The primary judge found that the transfers made by Minerva to Synergy were made by the appellant to try to avoid an order being made winding up Synergy in liquidation. As I have noted, on 31 October 2017, the Commissioner issued a statutory demand to Synergy.
The primary judge found that the appellant did not direct the Commissioner at any time that any of the payments made to Synergy's RBA were to be applied in reduction of the appellant's DPN liability. Her Honour found that by 23 January 2018, the existence of a DPN liability was "recent information" so far as the appellant was concerned. The appellant's attempts to introduce the topic of his DPN liability for the first time, in the 23 January 2018 conversation, must be construed "in light of the sudden and recent knowledge" he received about the DPN.
The primary judge found that even if the appellant could establish that he had borrowed from Minerva intending to pay his DPN liability, his case would nonetheless fail as the appellant did not direct the Commissioner that any of the payments the subject of these proceedings should be allocated to the appellant's DPN liability. In those circumstances, the Commissioner was entitled to allocate those payments as he did, and was not obliged to allocate the payments to Synergy's quarterly PAYG withholding liabilities for the periods commencing 1 October 2016 and 1 January 2017: s 8AAZLA Taxation Administration Act 1953 (Cth); Practice Statement Law Administration 2011/20 attachment C.
The primary judge rejected the appellant's claim of mistake. Her Honour found that mistake was not pleaded and that in any event the concessions made by the appellant in cross-examination, that he knew there were different electronic funds transfer references for different accounts, were fatal to his claim. Her Honour found that the appellant intended to make all of the payments to Synergy's RBA account.
In relation to estoppel, the primary judge rejected the Commissioner's argument that an estoppel could not here arise, however, her Honour found that in this case the appellant had failed to establish the elements of his estoppel claim.
The representation the appellant alleged to have been made was that set out in paragraph 12(a) of the defence filed on 15 October 2018 and the particulars which were included: "12. In further answer to the whole of the SOC, and in the alternative to the above, the Defendant says that: (a) on or about 23 January 2018, the Plaintiff informed the Defendant that the payments received by the Plaintiff, as set out in paragraphs 8(a) to 8(d) and 9(a) above, had been allocated by the Plaintiff to the alleged liabilities to the Plaintiff detailed in paragraphs 8 and 9 of the SOC and that such liabilities had been satisfied and that no further action would be taken by the Plaintiff against the Defendant in respect of the alleged liabilities in paragraphs 8 and 9 of the SOC (Plaintiff's Representation); (b) acting in reliance on the Plaintiff's Representation, which reliance the Plaintiff induced, the Defendant thereafter conducted his financial affairs on the assumption and/or expectation the payments received by the Plaintiff, as set out in paragraphs 8(a) to 8(d) and 9(a) above, had been allocated by the Plaintiff in satisfaction of the alleged liabilities to the Plaintiff detailed in paragraphs 8 and 9 of the SOC and that those liabilities were extinguished; (c) the allegations by the Plaintiff in paragraphs 10, 11 and 12 of the SOC are contrary to the Plaintiff's Representation; and (d) in the premises, the Plaintiff is now estopped from asserting otherwise than the Plaintiff's Representation and is precluded from maintaining paragraphs 10, 11 and 12 of the SOC. Particulars The Plaintiff's Representation was oral consisting of a conversation between the Defendant and the Plaintiff on 23 January 2018. The substance of the conversation so far as is material is that set out above at 12(a)."
Her Honour observed that the date identified, 23 January 2018, coincided with the final payment made of $5,000 (see [20] above). Her Honour quoted the appellant's submission at 38, noting that the Commissioner complained that it was outside the pleaded case: "(g) in context, words could scarcely be clearer, that the ATO Officer, reviewing the ATO systems re the Defendant as they stood at that time, made a clear and unequivocal representation to the Defendant that there was 'currently' $3,223.46 left on his DPN debt and that the Payments were received by the ATO for the DPN debt."
Her Honour proceeded nevertheless to deal with the appellant's claim. The primary judge rejected the appellant's submission that there was a clear and unequivocal representation that payments had been allocated to the DPN and there was "currently" only $3,223.46 left. Her Honour found that, in context, the ATO officer had been told by the appellant that considerable sums had been paid to the Commissioner in satisfaction of the appellant's DPN liability. The ATO officer added up those sums, as he was invited by the appellant to do. In making this finding her Honour was not satisfied that the ATO officer was making a representation about the ATO's past or future conduct in allocating those sums to particular debts of Synergy. Her Honour concluded that the appellant "well knew, although the ATO officer did not" that none of the payments made prior to 23 January 2018 had been credited to the appellant's DPN account.
The primary judge found that there was nothing in the conversation on 23 January that suggested that the payments had in fact been allocated to the appellant's DPN liability. No representation was made that the ATO would take no further action against the appellant. Accordingly, her Honour concluded: "[86] … There is thus no representation of any kind at all, as well as no assumption or expectation by the defendant, who well knew that the process server was on his way with the statement of claim in these proceedings."
Her Honour also found that the appellant had failed to establish reliance or detriment. It was "simply too late" for the appellant to have taken any of the steps he said he would have taken but for the representation he says was made on 23 January 2018: 1. as to the payment plan, the conversations between the appellant and the ATO officers prior to 23 January made it clear that the appellant did not merely seek the possibility of entering into a payment plan, but tried to persuade ATO officers that he did in fact already have a payment plan on foot. In fact, the Commissioner was not willing to accept the payment proposal made on 19 February 2018, as Synergy had a number of outstanding obligations, a poor compliance history, increasing debt, aged debt and a lack of supporting financial information; 2. as to seeking to recover debts, the appellant told ATO officers in his emails, in support of his payment plan proposals, that he was already vigorously seeking to recover funds from company debtors and was confident that these would be recovered; 3. as to seeking legal advice, the appellant did not contact the solicitors for the ATO in relation to the winding up proceedings until 19 February 2018, two days prior to the first return of the proceedings; 4. the appellant had failed to establish that the winding up of Synergy could have been prevented by rebutting the presumption of insolvency. Her Honour also noted that a supporting creditor filed a notice of appearance in the winding up proceedings in relation to a debt owed to it by Synergy in the amount of $238,902.11; and 5. her Honour was not satisfied that there was any person or entity willing to extend a loan to the appellant in relation to his DPN liability. No evidence was led by the appellant about that issue.
The primary judge was satisfied that on 23 January 2018 the appellant knew that a process server was looking to serve him with the claim based on his DPN liability. He was served with the claim shortly thereafter. The representation, even if made, could not have had a continuing effect on the appellant: Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 418-419; [1988] HCA 7.
Her Honour was satisfied that the appellant would not have been successful in preventing the winding up of Synergy or taking any of the other steps identified in his evidence. Thus, her Honour was satisfied that, had there been a representation, there was no detriment as a result.

Legal framework

The framework in which these proceedings were conducted should be briefly sketched.

The Commissioner's powers to allocate payments received

Part IIB of the Taxation Administration Act (ss 8AAZA to 8AAZN) makes provision for, amongst other things, the establishment of RBAs for entities, the application of particular payments to tax debts and other related matters.
Section 8AAZA of the Taxation Administration Act, which appears in Div 1 of Part IIB of that Act, defines an "entity" to include a "person", "tax debt" to mean a "primary or secondary tax debt", "primary tax debt" to mean (subject to an immaterial qualification) "any amount due to the Commonwealth directly under a taxation law" and "secondary tax debt" to mean "an amount that is not a primary tax debt, but is due to the Commonwealth in connection with a primary tax debt".
Although the detail is not directly in issue, the appellant relies on s 8AAZL(1)(a) of Div 3 of Part IIB of the Taxation Administration Act which sets out how the Commissioner must treat "a payment the Commissioner receives in respect of a current or anticipated tax debt or tax debts of an entity". Section 8AAZL provides: 8AAZL Amounts covered by this Division (1) This Division sets out how the Commissioner must treat the following kinds of amount: (a) a payment the Commissioner receives in respect of a current or anticipated tax debt or tax debts of an entity; (b) a credit (including an excess non-RBA credit) that an entity is entitled to under a taxation law; (c) an RBA surplus of an entity. (2) The Commissioner must treat each such amount using the method set out in section 8AAZLA or 8AAZLB (but not both). Note: In either case, section 8AAZLC has some additional rules that apply to RBA surpluses and to certain excess non‑RBA credits. (3) However, the Commissioner does not have to treat an amount using either of those methods if doing so would require the Commissioner to apply the amount against a tax debt: (a) that is due but not yet payable; or (b) in respect of which the taxpayer has complied with an arrangement under section 255-15 to pay the debt by instalments; or (c) in respect of which the Commissioner has agreed to defer recovery under section 255-5. (4) Furthermore, the Commissioner does not have to treat an amount using either of those methods if: (a) doing so would require the Commissioner to apply the amount against a tax debt; and (b) the tax debt is a penalty that is due and payable under section 269‑20 in Schedule 1 (penalties for directors of non‑complying companies).
The appellant points out that the Commissioner must treat a payment the Commissioner receives "in respect of a current or anticipated tax debt or tax debts of an entity" using one of the methods set out in ss 8AAZLA and 8AAZLB: s 8AAZL(2) Taxation Administration Act; subject to subss 8AAZL(3) and (4). Pausing there, the appellant submitted that the text of s 8AAZL directs attention to the identification of the "entity" and the "tax debts" of that "entity" in relation to which an amount has been paid and received. Three observations may be made about this submission. First, no submission was advanced, nor could it have been, that the application of either of the methods provided by ss 8AAZLA and 8AAZLB could have affected the outcome of this case. Secondly, it is likely that neither applied and s 8AAZL(4) applied in the present case. The appellant's DPN liability was due and payable, although the Commissioner had to give the appellant 21 days' notice before commencing recovery proceedings. Thirdly, each of the relevant payments was plainly made and received in relation to Synergy as the "entity", in payment of Synergy's RBA liability, which comprised Synergy's "tax debt". As I will explain, the real issue is the allocation of those payments to the component parts of Synergy's tax debt.
This is not a case where the appellant (or Synergy) gave any instruction or direction to the Commissioner about the allocation of the payments made to Synergy's RBA. Even if such a direction had been given, the Commissioner was not obliged to comply with it. Section 8AAZLE of the Taxation Administration Act provides that in doing anything under Div 3 of Part IIB of that Act, the Commissioner is not required to take account of any instructions of an entity: 8AAZLE Instructions to Commissioner not binding In doing anything under this Division, the Commissioner is not required to take account of any instructions of any entity.
If, contrary to the facts of this case, the appellant (or Synergy) had given an instruction or direction to the Commissioner about the allocation of the payments made to Synergy's RBA, the Commissioner was not obliged to comply with it.

Pay As You Go Withholding

Pursuant to s 16-70 of Sch 1 to the Taxation Administration Act, an entity that withholds an amount under Div 12 of Sch 1 to the Taxation Administration Act under the PAYG withholding rules is required to pay the amount withheld to the Commissioner in accordance with subdiv 16-B of Sch 1 to the Taxation Administration Act. An entity is required to pay an amount withheld by the due dates set out in s 16-75 of Sch 1 to the Taxation Administration Act.
Section 269-40 in Sch 1 to the Taxation Administration Act is an important provision. That section makes provision for the corresponding discharge of the liability of a company and a director (the subject of a DPN) where one or the other of the company or the director discharges (by payment) that corresponding liability.
By s 269-40(2), if an amount is paid or applied at a particular time towards discharging one of the liabilities the subject of a DPN, "each of the other liabilities in existence at that time is discharged" to the extent of the same amount. In the present case, if payments made by Synergy had been allocated by the Commissioner so as to discharge Synergy's liability for quarterly PAYG amounts Synergy had withheld and not remitted to the Commissioner for the periods commencing 1 October 2016 and 1 January 2017, the appellant's DPN liability would have been discharged to the same extent.

Director Penalty Notices

Subdivision 269-B of Sch 1 to the Taxation Administration Act, headed "Obligations and Penalties", contains provisions dealing with: 1. a director's obligations to cause a company to pay certain liabilities due and payable by a company; 2. a director's liability to penalty if the company fails to comply with its obligations; and 3. the recovery of director penalties by the Commissioner.
The obligations which attract director penalties include (amongst others) a company's obligation to pay by the due day amounts of PAYG withholding (s 269-10(1), Item 1 of Sch 1 to the Taxation Administration Act).
Section 269-15 of Sch 1 to the Taxation Administration Act provides that the directors of a company, from time to time, must cause the company to comply with its obligations to pay relevant liabilities by the due day. Section 269-20(1) of Sch 1 to the Taxation Administration Act imposes a penalty on a director in respect of a director's unmet obligations under s 269-15 of Sch 1 to the Taxation Administration Act to cause payment to be made to the Commissioner. The penalty is due and payable at the end of the due day: s 269-20(2). The amount of the penalty is equal to the unpaid amount of the company's liability under its obligation pursuant to s 269-20(5) of Sch 1 to the Taxation Administration Act.
A penalty payable by a director under Div 269-B is a tax related liability, and is a debt due to the Commonwealth, payable to the Commissioner, and recoverable by the Commissioner: s 250-10(2) Item 139 and s 255-5 of Sch 1 to the Taxation Administration Act. Pursuant to s 269-25, the Commissioner is required to give to a director 21 days' notice under that section prior to commencing proceedings to recover a penalty.
Notice under s 269-25 of Sch 1 to the Taxation Administration Act may be given by the Commissioner by leaving it, or posting it, to an address that appears, from information held by ASIC, to be, or to have been within the last 7 days, the place of residence or business of the director: s 269-50 of Sch 1 to Taxation Administration Act. A notice is validly served even if it is not in fact received by the addressee if s 269-50 is complied with: Fitzgerald v Deputy Commissioner of Taxation [2017] NSWCA 158.
Service of a notice pursuant to s 269-50 of Sch 1 to the Taxation Administration Act is effected by the act of posting a notice to such address of a director as is found in ASIC records: Robertson v Deputy Commissioner of Taxation [2010] NSWCA 58. Notice under s 269-25 is given at the time that the Commissioner posts the notice to the director: s 269-25(4) of Sch 1 to the Taxation Administration Act.
Section 269-30 of Sch 1 to the Taxation Administration Act provides for a penalty to be remitted if before or within 21 days after the Commissioner gives a notice under s 269-25 of Sch 1 to the Taxation Administration Act a director is no longer under the obligation imposed by s 269-15, for example, because the company begins to be wound up or an administrator is appointed. This is, of course subject to the operation of the "lockdown" provisions in s 269-30 discussed in Lee v Deputy Commissioner of Taxation; Silverbrook v Deputy Commissioner of Taxation [2020] NSWCA 95.

The payment defence

Grounds 1 and 2 of the notice of appeal allege that the primary judge erred in failing to find that the funds advanced to Synergy by Minerva were loans made by Minerva to the appellant "for the purpose" of the appellant making payments in satisfaction of his DPN liability (ground 2) and erred in failing to find that the payments received by the Commissioner "through Synergy and Minerva as [the appellant's] payment agent" were in fact made in satisfaction of the appellant's DPN liability (ground 1).
There are two fundamental problems with the appellant's payment defence: 1. first, the appellant did not prove that Minerva made a loan to anybody, much less that there was a loan made by Minerva to him rather than to Synergy; and 2. secondly, the appellant did not prove that any of the payments the subject of these proceedings was made in discharge of his DPN liability. To the contrary, it was established that all of those payments were made to the Synergy RBA without a direction from the appellant (or anybody else) to the Commissioner that the funds should be applied to the appellant's DPN liability. The appellant did not establish that the Commissioner was not entitled in those circumstances to allocate the payments received as he did.
As to the loan issue, the appellant's payment defence was predicated upon an acceptance of the appellant's evidence that he obtained the funds to make the payments described at ([7]-[17] above) "via loans made by Minerva to me". The appellant relied upon the correlation between the sum of the payments made to Synergy's RBA and the amount of the appellant's DPN. Sporadic payments by Minerva to Synergy over the course of four months, without more, which payments found their way into Synergy's RBA with the Commissioner, do not evidence a loan agreement.
A loan agreement is a contract. The essence of a loan of money from A to B is a corresponding contemporaneous obligation on the part of B to repay the money transferred from A to B: Commissioner of Taxation v Radilo Enterprises Pty Ltd (1997) 72 FCR 300 at 313; [1997] FCA 22 per Sackville and Lehane JJ; Commissioner of Taxation v Firth (2002) 120 FCR 450; [2002] FCA 413 at [73] per Sackville and Finn JJ. The existence of an enforceable agreement depends on the intention of the parties, objectively ascertained. A contract may be inferred from conduct, even where no offer and acceptance can be identified: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [71]-[80]. A loan, especially in a family company, can be created by conduct, and can be sufficiently evidenced by a book entry: VL Finance Pty Ltd v Legudi [2003] VSC 57; (2003) 54 ATR 221 at [30].
The evidence led by the appellant did not establish a loan agreement between Minerva and the appellant. There was no evidence, even at the level of assertion, that the appellant entered into a corresponding contemporaneous obligation to repay Minerva the money transferred from Minerva to Synergy. The only assertions made by the appellant in his affidavit evidence, "I obtained those funds via loans made by Minerva to me" and "I caused Minerva to loan me the funds so the Payments could be made", were demonstrably inadequate as proof of a loan agreement. At best, these assertions were relevant to the appellant's subjective intentions. Those subjective intentions were themselves contradictory. In re-examination the appellant said about the description of the relevant payments in Minerva's bank statements that "It [was] for me to track where the money is being sent so that I knew the money that I had loaned from Minerva to Synergy could be tracked…". That description of the appellant's state of mind, that the advances constituted a loan from Minerva to Synergy, is inconsistent with the appellant's case advanced on appeal.
The objective evidence was inconsistent with the appellant's case. The appellant accepted that he understood that he could not permit Minerva to incur a liability without documenting that liability properly, by reason of, inter alia, his obligations as a director of Minerva and the requirements of s 286 of the Corporations Act 2001 (Cth). No document evidencing or referring to any loan allegedly made by Minerva was ever produced. Minerva's bank statements, which contain a contemporaneous description made by the appellant about each payment, all record an advance by Minerva to Synergy. Each advance is simply described as a "payment" and no description is given of any loan. For the purposes of s 1305(1) of the Corporations Act, the bank statements are prima facie evidence of an advance by Minerva to Synergy.
It is not correct that the primary judge erred in attaching significance to the absence of contemporaneous documents supporting the existence of an agreement between Minerva and the appellant. It is of course correct that a strict process of offer and acceptance is not the only way that a contract can be formed, as explained by Heydon JA in Brambles. His Honour's reference in that case to a contract formed by a single broker acting for both parties is an example of a contract not necessarily amenable to a strict offer and acceptance analysis. That conclusion does not avail the appellant here. This case is not analogous to a contract formed through a broker acting for both parties. As Heydon JA explained in Brambles at [77], the correct principle was identified by McHugh JA (Hope and Mahoney JJA agreeing) in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117-11,118; the conduct of the parties must be capable of proving all of the essential elements of the contract. It was not shown that the intention of the parties, objectively ascertained, was to create an enforceable loan agreement between Minerva and the appellant.
As to the second issue, it is tolerably clear that all of the payments made to the Commissioner were made by Synergy and Minerva in discharge of Synergy's RBA debt, without the appellant, Synergy or Minerva giving a direction to the Commissioner that the funds should be applied to the appellant's DPN liability.
It is not enough for the appellant to succeed in this appeal to establish that there was a loan agreement between Minerva and the appellant. Assuming that such a loan agreement had been proved, the appellant failed to establish that the payments made to the Commissioner were made in reduction of the appellant's DPN liability. All of the payments were made to Synergy's RBA account. There was nothing in the payment descriptions, and nothing in any of the communications emanating from the appellant, Synergy or Minerva which sought to direct the Commissioner to apply the payments in a way which reduced the appellant's DPN liability.
As I have explained, the appellant caused each of the payments to be made using an electronic funds transfer reference for Synergy, and did not use the electronic funds transfer reference he was told about in the DPN for payment of his DPN liability. The appellant was also aware that in electronically transferring funds to the ATO he could add a descriptor, for example "Kedwell DPN payment". He answered in cross-examination: "Q: Well … I asked you why you didn't put the description 'Kedwell DPN payment'? A: Because it was not relevant."
The appellant himself did not regard the description "Kedwell DPN payment" as relevant. That evidence, whilst consistent with the contemporaneous payment descriptions he chose to use, is quite inconsistent with the case maintained on appeal.
Finally, s 8AAZLE of the Taxation Administration Act provides a complete answer to the appellant's payment defence. The Commissioner received funds paid into Synergy's RBA. The Commissioner was not bound by any instructions given to him by or on behalf of Synergy about how those payments were to be allocated in payment of Synergy's debts. It is correct that, had the Commissioner chosen to allocate those payments to Synergy's quarterly PAYG withholding liabilities for the periods commencing 1 October 2016 and 1 January 2017, there would have been a corresponding reduction in the appellant's DPN liability. The Commissioner was not bound to do so and in fact did not do so. The appellant's payment defence fails for this additional reason.
Grounds 1 and 2 must be dismissed.
Appeal grounds 3 and 4, correctly understood, are an elaboration of the payment defence. So much is recognised by the appellant's written submissions which address grounds 1-4 together. Ground 3 complains that the primary judge erred in treating the appellant's evidence about not using the electronic funds transfer reference number for his DPN liability as raising an issue of mistake, which the appellant acknowledged had not been pleaded. Ground 4 asserts that the primary judge erred in failing to conclude that the appellant "intended to and thereby did" make each of the payments in partial satisfaction of his DPN liability.
It is clear that no pleading of mistake was advanced below and a case of mistake was disavowed by the appellant in this Court. Consideration of mistake and possible defences available to the Commissioner to such a case may thus be put to one side.
No separate submission was advanced by the appellant orally in support of grounds 3 and 4. The only separate submission advanced by the appellant in writing in support of grounds 3 and 4 was that the appellant intended to pay the Commissioner but made an error in identifying an incorrect electronic funds transfer reference number. The appellant submitted that his defence was established. The defence was said to be, in substance, one of "no, that debt to you was paid to you by me".
For essentially the same reasons as in relation to grounds 1 and 2, grounds 3 and 4 must be rejected.
The primary judge found that "any submission that [the appellant's] failure to seek that the first four payments be allocated towards appropriate liabilities was some sort of mistake is without foundation". Her Honour was correct in reaching that conclusion. The appellant's evidence, as a whole, did not support a finding that there was any relevant error. In the recorded telephone conversations, the subject of the appellant's DPN liability is not raised at all by the appellant until the conversation on 23 January 2018, after all of the relevant payments have been made to Synergy's RBA. The appellant knew, at least from 8 November 2017, that there were different electronic funds transfer references used by the Commissioner for different accounts. To adopt the appellant's language, he failed to establish each limb of the payment defence, that is, it was not proven that the relevant debt, the appellant's DPN liability, was paid to the Commissioner by the appellant.
Finally, as I have said, s 8AAZLE of the Taxation Administration Act provides a complete answer to the appellant's payment defence. Grounds 3 and 4 must be dismissed.

The estoppel defence - grounds 5-8

Ground 6 of the notice of appeal alleges that the primary judge erred in finding that no relevant representation was made by the ATO officer in the recorded telephone call on 23 January 2018. Ground 8 is related in that the appellant complains that the primary judge erred in failing to "draw an inference" about the failure to call that ATO officer to give evidence. Ground 7 of the notice of appeal alleges that the primary judge erred in finding that the appellant did not establish detrimental reliance on the alleged representation.
The grounds of appeal relating to the appellant's estoppel defence fail for three reasons: 1. the primary judge was correct to conclude that no representation, either as pleaded or as asserted by the appellant in submissions, was made by the ATO representative on 23 January 2018; 2. the contemporaneous documents establish that the appellant did not rely upon either version of what he now says he was told on 23 January 2018; and 3. the primary judge was correct to conclude that the appellant failed to establish detrimental reliance in that none of the things the appellant alleged that he would done differently if the "representation" had not been made out.

No representation

The appellant's defence identifies the relevant representation as being that: "On or about 23 January 2018, the Plaintiff informed the Defendant that the payments received by the Plaintiff, as set out in paragraphs 8(a) to 8(d) and 9(a) above, had been allocated by the Plaintiff to the alleged liabilities to the Plaintiff detailed in paragraphs 8 and 9 of the SOC and that such liabilities had been satisfied and that no further action would be taken by the Plaintiff against the Defendant in respect of the alleged liabilities in paragraphs 8 and 9 of the SOC (Plaintiff's Representation)".
The appellant's written submissions characterised the representation as being that "the Payments had been received and allocated in reduction of the liabilities the subject of the DPN".
As I have explained at [29] above, it is tolerably clear by reference to the transcript of the phone call on 23 January 2018 that the ATO officer, upon being told by the appellant that the sums had been paid in satisfaction of the appellant's DPN liability, was invited to and did add those payments up. There was no representation made by the ATO officer about the ATO's past or future conduct in relation to these sums. In particular, there was no express or implied representation that the ATO had allocated the sums received in reduction of the liabilities the subject of the appellant's DPN.
At best for the appellant, the conversation between the appellant and the ATO officer on 23 January 2018 contains a representation that sums had been received onto Synergy's account and that once all of the funds had cleared, then "… once we receive payment for this one we escalate to the accounts team and they do what is called a reconciliation and they credit any payments that have been made to the separate director penalty account." This was not a representation that "the Payments had been received and allocated in reduction of the liabilities the subject of the DPN". At best it was a representation about possible future conduct in circumstances where the appellant knew that a statement of claim relating to his DPN liability had been issued and the Commissioner was actively seeking to serve that statement of claim. No exercise of discretion to allocate payments to the appellant's DPN had occurred by that time. That was made clear by the ATO officer. As none of the payments was in fact made to the DPN liability no allocation occurred in favour of the appellant.
As to any reliance upon a representation about the Commissioner's future conduct, the appellant was told in the same conversation that the statement of claim was in the hands of the AGS and that "everything now other than basic account explanation would go through that solicitor". No question arises about the Commissioner seeking to resile from a previous decision.
The appellant knew, although the ATO officer did not, that none of those payments made prior to 23 January had been credited to the appellant's DPN account. The appellant admitted as much in cross-examination. The appellant acknowledged that there was nothing in the 23 January conversation that suggested that the payments had been allocated to his DPN liability. The appellant agreed that there was no representation by the ATO that the Commissioner would take no further action against him.
That evidence is dispositive of the appellant's estoppel case. There was no representation as alleged, let alone an assumption or expectation of the kind pleaded, engendered in the appellant. No clear and unambiguous representation of the kind complained of was made to the appellant.
Her Honour correctly found that there was no representation that the payments had been allocated to the appellant's DPN liability.
As to appeal ground 8, it was not part of the appellant's pleaded case, nor his evidence, that it was the ATO officer on the telephone call of 23 January 2018 who in fact allocated any payments to the appellant's DPN account. There can be no dispute about what it was that the ATO officer said in that call as it was recorded. The appellant's complaint that in those circumstances there was an error in the primary judge failing to conclude that it was incumbent on the Commissioner to call that ATO officer as a witness is without merit.

No reliance

The appellant, in cross-examination, admitted that: 1. as at 23 January 2018, he was aware that none of the 2017 and 2018 payments made had been allocated towards the DPN liability; 2. at no time during the telephone conversation on 23 January 2018 did the ATO officer suggest that the 2017 and 2018 payments had been allocated to the DPN liability; 3. at no time during the telephone conversation on 23 January 2018 did the ATO officer suggest that the Commissioner would not take any recovery action against the appellant in relation to his DPN liability; and 4. at no time during the telephone conversation on 23 January 2018 did the ATO officer say that the appellant's DPN liability had been extinguished.
These admissions by the appellant make his reliance case untenable. The appellant did not believe he had been told on 23 January that "the Payments had been received and allocated in reduction of the liabilities the subject of the DPN."
Further, the contemporaneous documents establish clearly that the appellant did not rely on what he pleaded he was told by the ATO representative on 23 January 2018. The email on 7 March 2018 from the appellant to the AGS, which I have referred to above at [21], is dispositive of the issue of reliance. The appellant set out at some length in that email his contemporaneous understanding of the matters central to his estoppel defence. A number of matters should be noted: 1. the context of the email was the Commissioner's application to appoint a liquidator to Synergy which was to be heard later that day. The appellant asserted that "in spite of your client's repeated unwillingness to enter into a debt arrangement we have continued to make large regular payments in order to reduce [the] amount owing". This statement is a clear contemporaneous assertion by the appellant that the sums the subject of the payment defence were intended by him at the time to discharge a liability of Synergy; 2. the appellant asserted that the Commissioner's actions in failing to enter into a payment arrangement "are deliberate acts aimed to manufacture a scenario whereby the taxpayer falls into default and remains personally liable for certain amounts owing". Contrary to the assertions made by the appellant in these proceedings, no suggestion is contained in the appellant's email that he understood that he had paid amounts for which he was personally liable or that he was told by an ATO officer on 23 January 2018 that he was no longer personally liable for the amount of his DPN liability; and 3. the appellant asserted in relation to the DPN liability that the Commissioner was obliged by Practice Statement Law Administration 2011/20 to correct this "maladministration" and allocate all payments made in satisfaction of Synergy's RBA account debt to that part of the debt which would reduce the amount for which the appellant was liable under the DPN (being Synergy's quarterly PAYG withholding liabilities for the periods commencing 1 October 2016 and 1 January 2017). It is clear that the appellant knew that any payments made had not been allocated to his DPN liability. Despite the lengthy complaints contained in the appellant's email, no suggestion was that he had relied or was relying upon anything said by the ATO representative on 23 January 2018 about his DPN liability.
There was no reliance by the appellant on the alleged representation.

No detriment

At [51] of the appellant's affidavit he sets out what he would have done in March 2018 had the representation not been made by the Commissioner, namely that he would have taken steps to avoid Synergy being wound up. The primary judge dealt fairly and correctly with this evidence as I have set out at [31] above.
None of the matters alleged by the appellant as constituting detriment was established. The appellant admitted in cross-examination that the amount claimed in the winding up proceedings was well in excess of the amount of debts that Synergy was able to recover; Synergy had no other source of income other than from its debtors; and by December 2017, Synergy was not trading and the appellant was actively seeking to recover its debts as quickly as he could.
In respect to seeking to delay the proceedings, there is no evidence that the appellant even contemplated attempting that outcome. The Commissioner commenced the winding up proceedings against Synergy on 19 January 2018, before the critical conversation. The appellant sought but failed to enter into a payment arrangement with the Commissioner to address Synergy's debts. The Commissioner was not willing to accept the payment proposal made on 19 February 2018 as Synergy had a number of outstanding obligations, a poor compliance history, increasing debt, aged debt and a lack of supporting financial information. There is nothing in the evidence to suggest that delay was even a possibility.
The appellant was not prevented from seeking to recover Synergy's debts by reason of any alleged representation by the Commissioner. The appellant was aware on 23 January and subsequently that the payments made to Synergy's RBA had not been allocated to his DPN liability. The appellant was not prevented from engaging legal representation to defend the winding up application made against Synergy, or at least delay the outcome of such an application, by reason of any alleged representation. There was no detrimental reliance established.

Ground 5

In the circumstances of this case, ground 5 of the notice of appeal raises a moot issue. The appellant complains that at [73] the primary judge adopted too narrow an approach to the circumstances in which an estoppel may arise against a revenue authority. The primary judge treated the pleaded estoppel claim as open to the appellant, but rejected it. In those circumstances it is undesirable for this Court to opine about the precise limits of an estoppel which may arise against the Commissioner of Taxation.
Grounds 5-8 of the notice of appeal must be dismissed.

Conclusion and orders

For the foregoing reasons I propose the following orders: 1. Appeal dismissed; 2. Appellant to pay the costs of the respondent.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 October 2020

Kedwell v Deputy Commissioner of Taxation

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