228 CLR 409
BW Esler Services Pty Limited v Dulhunty [2000] NSWCA 349
Deputy Commissioner of Taxation v Woodhams [2000] HCA 10
199 CLR 370
Hedger v Steavenson (1837) 2 M & W 799
Source
Original judgment source is linked above.
Catchwords
228 CLR 409
BW Esler Services Pty Limited v Dulhunty [2000] NSWCA 349
Deputy Commissioner of Taxation v Woodhams [2000] HCA 10199 CLR 370
Hedger v Steavenson (1837) 2 M & W 799
Judgment (9 paragraphs)
[1]
Solicitors:
(Appellants)
ATO Legal Services Branch (Respondent)
File Number(s): 2012/368875
Decision under appeal Citation: Deputy Commissioner of Taxation v Power [2012] NSWSC 995
Date of Decision: 09 November 2012
Before: Johnson J
File Number(s): 2011/213127
[2]
[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.]
[3]
Judgment
BARRETT JA: The circumstances giving rise to this appeal appear from the judgment of Emmett JA and need not be repeated. I have reached the same conclusion as his Honour and can state my reasons briefly.
The question is whether each of the relevant notices satisfied the following specification in s 269-25, a provision within Subdivision 269-B of Division 269 in Schedule 1 to the Taxation Administration Act 1953 (Cth):
"must . . . state that you are liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount because of an obligation you have or had under this Division."
The reference to "that unpaid amount" is a reference to the part of the s 269-25 specification referring to "what the Commissioner thinks is the unpaid amount of the company's liability under its obligation". The reference to "this Division" is a reference to Division 269 in Schedule 1 to the Taxation Administration Act. That division is headed "Penalties for directors of non-complying companies" and is made up of four sub-divisions, twelve sections and 34 sub-sections.
It is not in dispute that each notice stated that the appellant was liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of each liability of the particular company set out in a table contained in the notice. There was, however, no explicit description of the notified liability of the appellant (identified by the words "you, as a director of the company, are liable") as a liability existing "because of" an "obligation" that the appellant had "under" either Division 269 or any of the several discrete provisions within Division 269.
There was, however, clear reference to a liability having a statutory source, being a source to which s 269-25 in Schedule 1 was relevant.
In addition, each notice was accompanied by a covering letter which made clear the secondary or derivative nature of the asserted liability:
"You automatically became liable to the penalty when the company failed to pay the amount(s) set out in the enclosed notice by the due date(s)."
In the whole of the circumstances, there was an unmistakeable message that the notified liability was a liability that proceeded from and was co-extensive with a statutory obligation imposed by the part of the taxation legislation to which explicit reference was made, being the part to which s 269-25 (a provision within Division 269) was relevant. The reference to s 269-25, coupled with the references to a liability and the nature of the liability as arising "automatically" upon the company's failure to pay, necessarily implied the existence of a statutory obligation which was the source of the liability.
The present circumstances resemble those in which the holder of a dishonoured bill of exchange seeks to enforce the secondary liability of an indorser of the bill. The holder must, in the first instance, give notice of dishonour to the indorser. The purpose of the notice is to put the indorser on notice of the circumstances alleged to make him or her liable to pay the holder - in particular, dishonour by the acceptor on presentment. The relevant requirement (which is now a statutory requirement under s 54(e) of the Bills of Exchange Act 1909 (Cth)) is that the notice identify the bill and "intimate that the bill has been dishonoured by . . . non-payment". The term "intimate" has the same meaning as "state" in the provision here under consideration.
Since at least the second quarter of the nineteenth century, it has been recognised that notices of dishonour are to be construed in a businesslike way. In Hedger v Steavenson (1837) 2 M & W 799; 150 ER 980, the holder merely said, in a notice given to the indorser, that the bill "became due yesterday and has been returned unpaid". Parke B held that that it appeared from the notice "by reasonable intendment" (and would have been inferred by any man of business) that the bill had been presented to the acceptor and not paid by him, even though presentment to and non-payment by that person were not expressly mentioned. Alderson B was of the opinion that the presentment and dishonour were "necessarily to be inferred" from the words used. Bolland B and Gurney B were of like opinion.
Here too, in my view, each of the s 269-25 notices, viewed in the context in which it was given, stated by reasonable intendment what was necessarily to be inferred by any company director receiving a document obviously issued under statutory authority - namely, that the asserted payment liability was a product of a statutory obligation created by the part of the taxation legislation containing the identified provision pursuant to which the notice was stated to be given, even though that part was not expressly identified as Division 269 of Schedule 1 to the Taxation Administration Act 1953 (Cth).
I agree that orders should be made as Emmett JA proposes.
WARD JA: I agree with Emmett JA.
EMMETT JA: This appeal is concerned with Div 269 of the Taxation Administration Act 1953 (Cth) (the Administration Act). Division 269 imposes penalties on a director who does not ensure that his or her company meets its obligations to pay to the respondent, the Deputy Commissioner of Taxation (the Commissioner), amounts withheld under the PAYG regime. The question arose in proceedings in which the Commissioner sought to recover penalties alleged to be owing by the appellant, Mr Kevin Power, in respect of the failure by Oakdale Newcastle Formwork Pty Limited (Oakdale) to pay to the Commissioner amounts withheld by it. At relevant times, Mr Power was a director of Oakdale.
[4]
The Legislative Framework
Section 12-35 of the Administration Act relevantly provides that a company must withhold an amount for income tax from salary, wages, commission, bonuses or allowances that it pays to an individual as an employee. Under s 16-70(1), a company that withholds an amount under s 12-35 must pay the amount to the Commissioner. The object of Div 269, which consists of four subdivisions containing 12 separate sections, is to ensure that a company obliged under s 16-70 to pay withheld amounts to the Commissioner either meets that obligation or promptly goes into voluntary administration or liquidation. It seeks to achieve that object by imposing personal liability on directors of companies that do not either meet their obligations or forthwith go into administration or liquidation.
Division 269 applies if, on a particular day (the initial day), a company withholds an amount under s 12-35 and the company is obliged to pay that amount to the Commissioner, in accordance with s 16-70, on or before a particular day (the due day). Section 269-15(1) provides that the directors of such a company are obliged, on or after the initial day, to cause the company to comply with its obligation to pay the amount to the Commissioner. The directors continue to be under their obligation until:
the company complies with its obligation; or
an administrator under the Corporations Act 2001 (Cth) of the company is appointed; or
the company begins to be wound up.
The effect of s 269-20 is that if, at the end of the due day, the directors of a company are still under an obligation imposed by s 269-15, a person who was under such an obligation at or before that time is liable to pay to the Commissioner a penalty equal to the unpaid amount of the company's liability. The penalty is due and payable at the end of the due day. However, a penalty will be remitted if the directors of the company stop being under the obligation imposed by s 269-15, either before the Commissioner gives the directors notice of the penalty under s 269-25 or within 21 days after the Commissioner gives the directors notice of the penalty under that section. Thus s 269-15 creates the obligation on the director and s 269-20 provides for the director's liability to pay a penalty if that obligation is not discharged.
Under s 269-40(2), if an amount is paid or applied at a particular time towards discharging a company's liability under its obligation to pay an amount to the Commissioner on the due day, each director's liability to pay a penalty under Div 269 in relation to the company's liability, if still in existence at that time, is discharged to the extent of the amount so paid or applied. Further, s 269-45 confers on a director who pays a penalty the same rights, by way of indemnity, subrogation, contribution or otherwise, against the company or anyone else, as if the director made the payment under a guarantee of the company's liability.
The critical provision for the purpose of this appeal is s 269-25. Section 269-25(1) relevantly provides that the Commissioner must not commence proceedings against a director to recover a penalty payable under s 269-20 until the end of 21 days after the Commissioner gives the director a written notice. Under s 269-25(2), such a notice must:
set out what the Commissioner thinks is the unpaid amount of the company's liability under its obligation;
state that the director is liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount because of an obligation that the director has or had "under this Division"; and
explain the main circumstances in which the penalty will be remitted.
The words emphasised are of critical importance for the question raised by the appeal. It is significant that the reference is to this Division and not to s 269-15, which actually imposes the obligation referred.
[5]
The Notice
Oakdale withheld amounts under s 12-35 but failed to pay them to the Commissioner as required by s 16-70. Several notices purporting to be notices under s 269-25 were served on Mr Power. Each of the notices is in relevantly the same terms. It is convenient to deal with the last of the notices, which is dated 11 April 2011 (the Notice). A copy of the Notice is set out in the Appendix to these reasons.
It is desirable to draw attention to some relevant aspects of the Notice. At the very top of the Notice is a reference to s 269-25 of the Administration Act: "Section 269-25 in Schedule 1". Immediately below that is a reference to the statute in which Schedule 1 and s 269-25 are found: "Taxation Administration Act 1953". Below that is a heading in bold capital letters:
"NOTICE OF DIRECTOR'S LIABILITY TO PAY A PENALTY TO THE COMMISSIONER OF TAXATION".
Below that, there is another heading also in bold capital letters:
"PAYG WITHHOLDING AMOUNTS".
Next, the body of the Notice states that the Commissioner gives Mr Power "notice under s 269-25 in Schedule 1 to the TAA 1953 that" Mr Power, "as a director" of Oakdale, is "liable to pay the Commissioner by way of penalty an amount equal to the unpaid amount of the liability of" Oakdale. Finally, the Notice refers to the unpaid amount of the liability of Oakdale "pursuant to" s 16-70(1). Thus, the Notice clearly identifies that Mr Power's liability for a penalty is in relation to amounts unpaid by the Oakdale and that he is liable as a director of Oakdale.
Oakdale's obligation was not satisfied after service of the Notice and the Commissioner commenced proceedings against Mr Power for recovery of the penalty referred to in the Notice. Mr Power defended the proceedings on the basis that the Commissioner had not satisfied the prerequisites of s 269-25 and so could not continue to prosecute the proceedings against him. A judge of the Court rejected that contention and gave judgment against Mr Power in favour of the Commissioner. Mr Power now appeals from the orders made by the primary judge.
[6]
The Appeal
Mr Power contends that since the Notice did not state expressly that his liability to the Commissioner arose because he failed to satisfy an obligation that he had under Div 269, as required by s 269-25(2)(b), the Notice was invalid and the Commissioner was not entitled to prosecute the proceedings against him. The Commissioner's written submissions conceded that the primary judge was correct in accepting that compliance with the requirements of s 269-25 of the Administration Act is essential. In the course of oral argument, senior counsel for the Commissioner advanced a contention to the effect that any failure of the Notice to satisfy strictly the prerequisites of s 269-25(2) was not a bar to the proceedings. However, in the light of the concession made in the written submissions, that contention was not pressed. Whether the concession was correctly made is not in question.
Mr Power relies on the use of the word "must" in s 269-25(2). Thus, the Notice must set out one thing, state two other things and explain a third thing. However, while the use of must is significant, its use must be kept in perspective. A prescription as to a form to be followed will normally be expressed in language of obligation rather than of permission. The effect of the use of the word must is to be determined by reference to the legislative purpose of the provision in question (see Adams v Lambert [2006] HCA 10; 228 CLR 409 at [14]).
As I have indicated, the object of Div 269 is to ensure that a company meets its obligations under s 16-70 or promptly goes into voluntary administration or liquidation. To achieve that object, a sanction is imposed upon the directors of a company who do not cause the company to do one or other of those things. That sanction is, in substance, to impose on the directors the obligations of a surety in respect of their company's obligations under s 16-70. So much is apparent from the provisions of s 269-40 and s 269-45. Thus, discharge by the company of its obligations discharges the directors of their obligations to pay a penalty imposed by s 269-20. Further, where a director pays the penalty, the director has the same rights of indemnity and subrogation against the company as if the director was a surety.
Some light, although it is doubtful how much, might be thrown on the proper construction of s 269-25 by consideration of the provisions of s 222AOE of the Income Tax Assessment Act 1936 (Cth) (the 1936 Act). Section 222AOE was replaced by s 269-25 in connection with the so-called "rewriting" of the 1936 Act. The Income Tax Assessment Act 1997 (Cth) (the 1997 Act) and subsequent legislation, such as the Tax Law Improvement Act 1997 (Cth) and the Tax Law Improvement Act (No. 1) 1998 (Cth), purported to "rewrite" provisions of the income tax law. So much is clear from the explanatory memorandum (the Explanatory Memorandum) promulgated in connection with the Tax Laws Amendment (Transfer of Provisions) Bill 2010 (Cth) (the Transfer of Provisions Bill), which inserted s 269-25, as well as other provisions, into the Administration Act.
The Explanatory Memorandum said that an important aim of the "rewrites" in the Bill was to minimise any changes in meaning. Further, s 1-3 of the 1997 Act provides that an idea expressed in one form of words in the 1936 Act is not taken to be different when the same idea appears to be expressed in the 1997 Act, but in a different form of words. Section 15AC of the Acts Interpretation Act 1901 (Cth) (Interpretation Act) says the same thing. The relevant provisions of the Administration Act are treated as being part of the 1997 Act.
In effect, Div 269 replaced or "rewrote" Div 9 of the 1936 Act, in which s 222AOE was contained. Section 222AOE relevantly provided that the Commissioner was "not entitled" to recover from a person a penalty payable under subdiv B of Div 9 until the end of 14 days after the Commissioner had given to the person a notice that:
set out details of the unpaid amount of the liability referred to in s 222AOC (the predecessor of s 269-20); and
stated that the person was liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount, but that the penalty will be remitted in certain circumstances.
Thus, the first prerequisite of s 222AOE corresponds with s 269-25(2)(a). The second prerequisite of s 222AOE corresponds with the first part of s 269-25(2)(b) and with s 269-25(2)(c). Significantly, there was nothing in s 222AOE that corresponds with the second part of 269-25(2)(b), which refers to the reason why the recipient had a liability to pay a penalty, that is, because of an obligation that the director has or had under Div 269-20.
The Commissioner contends that s 269-25(2)(b) should be construed on the basis that s 269-25 was no more than a "rewriting" of s 222AOE. Thus, the Commissioner says, the effect of s 269-25 should not be construed as being different from the effect of s 222AOE of the 1936 Act. Therefore, the Commissioner says, the failure of the Notice to refer to the source of Mr Power's liability to pay a penalty is of no significance. Mr Power, on the other hand, contends that the inclusion of the second part of s 269-25(2)(b) was clearly more than a mere "rewriting" of s 222AOE and that the inclusion of that notion in s 269-25(2)(b) indicates a significant departure.
Clearly enough, the Notice does not state, in express terms, that Mr Power's liability is because of an obligation that he has under Div 269. The question is whether that is a critical element of the requirement of s 269-25(2)(b). Mr Power contends that there are two distinct requirements and that the provision should be construed as requiring that a notice must state both:
(i) that the recipient is liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount; and
(ii) that the recipient is liable to pay that amount because of an obligation the recipient has or had under Div 269.
It is necessary to determine the legislative object of the requirements of s 269-25(2) and whether the Notice achieves that object. Specifically, the question is whether s 269-25(2)(b) primarily requires a statement that the recipient is liable to pay a specified amount or primarily requires a statement that the recipient is liable to pay an amount and that the liability is because of an obligation that the recipient has under Div 269.
The object of Div 269 is the same as the stated purpose of the repealed Div 9. A notice under s 222AOE served two purposes. First, it informed the recipient of the unpaid amount of the company's liability and of the recipient's liability to a penalty in the same amount. Secondly, it informed the recipient of the alternative courses available that would result in the remission of the penalty. The object was to encourage the recipient to take steps to ensure that one or other of those courses was followed. The purpose was not to state the details of the facts relevant to the recipient's or company's liability. Pleadings and particulars effect that purpose, if and when proceedings are commenced to recover the penalty (see Deputy Commissioner of Taxation v Woodhams [2000] HCA 10; 199 CLR 370 at [35] to [37]).
The principal object of Div 269 is to ensure that a company either meets its obligation to pay withheld amounts to the Commissioner or promptly goes into voluntary administration or liquidation. One way in which that object is achieved is by requiring a notice to be given before commencing proceedings, in the expectation that that will prompt the recipient to comply with the obligation imposed by s 269-15. The reference in s 269-25(2)(b) to the reason for the recipient's liability, by the phrase "because of an obligation … under this Division", does not advance the achievement of that object. That phrase should not be understood as establishing a separate object that the recipient be informed of the source of the obligation such that, if not, the notice is invalid. Such an interpretation would thwart the principal object of Div 269, of which s 269-25 is a part. Section 269-25(2)(b) does not itself refer, in terms, to s 269-15, which is the source of the director's obligation. There is no warrant for interpreting the phrase "because of an obligation … under this Division" as importing a requirement that the notice state that s 269-15 creates the obligation giving rise to a penalty under s 269-20 about which a notice is being given under s 269-25. It is sufficient that the notice simply indicate that the amount must be paid under a scheme created by Div 269.
[7]
Conclusion
The appeal should be dismissed. Mr Power should pay the Commissioner's costs of the appeal.
[8]
Appendix - text version of the Notice (17.3 KB, pdf)
[9]
Amendments
15 December 2015 - Appendix added
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: 15 December 2015
The liability of a director to pay a penalty arises by force of s 269-20(1), not by reason of service of a notice that complies with s 269-25. That liability arises irrespective of whether the failure to give a valid notice is a bar to the prosecution of proceedings for recovery of the penalty. For example, it may be that a penalty could be the subject of a proof of debt in the bankruptcy of a director, whether or not a valid notice has been given under s 269-25.
In that regard, the language of s 222AOE can be contrasted with the language of s 269-25(1). The former provides that the Commissioner is not entitled to recover a penalty from a person until the end of 14 days after the Commissioner gives a notice to the person. Section 269-25(1), on the other hand, simply provides that the Commissioner must not commence proceedings to recover a penalty from a person until the end of 21 days after the Commissioner gives the person a written notice. The question of whether the latter is something more than a "rewriting" of the former is not presently in issue.
The reference in s 269-25(2)(b) to the reason why the recipient has a liability does no more than make explicit what was necessarily implicit in the requirements of s 222AOE. There is every reason to conclude that the inclusion of such a reference was intended to have no more than an adjectival effect and was not intended to create a separate and independent prerequisite for a valid notice, such that without it a notice does not satisfy s 269-25(2)(b).
In any event, the Notice stated explicitly that Mr Power was liable, as a director of Oakdale, to pay an amount by way of penalty. It is because he was a director of Oakdale that Mr Power was under the obligation imposed by s 269-15. Of course, it was not simply by reason of being a director. Rather, it was by reason of his failure, as a director, to take steps to cause Oakdale to comply with its obligation to pay the withheld amounts to the Commissioner on or before the due day.
There has been no suggestion that the Notice was misleading insofar as it simply said that he was liable "as a director" of Oakdale. The Notice clearly informed Mr Power, as the recipient, of the provision under which the Notice was given. While there was no reference to s 269-15, which is the statutory source of Mr Power's obligation the failure to discharge gave rise to the liability to pay the penalty, the Notice made clear that Mr Power was liable to pay, by way of penalty, an amount equal to the unpaid amounts withheld by Oakdale under the PAYG scheme.
As I have said, it is significant that the phrase at issue in s 269-25(2)(b), "because of an obligation … under this Division", does not mention the specific provision in Div 269, s 269-15, that creates the director's obligation. Even if one reads s 269-25(2)(b) without regard to the principal object of Div 269 that I have described above, all that the notice must do is make sufficiently clear that the penalty arises under an obligation the director had under Div 269. Thus, the Notice might have simply stated something along the following lines:
You are liable to pay an amount by way of penalty because of an obligation you have or had under Div 269 of the Administration Act.
That would have been an explicit compliance with any requirement of s 269-25(2)(b). However, Mr Power would have been no better informed as to the precise source of his liability. If he wished to determine precisely what the source of his liability was, he would still need to consult Div 269. The Notice referred to s 269-25, which is in the same subdiv B of Div 269 as s 269-15.
While the Notice failed to refer expressly to the fact that an obligation of Mr Power's arose under Div 269, it clearly informed him that he was liable because of statutory provisions associated with s 269-25 of the Administration Act. The Notice effectively calls attention to Div 269. That is all that is required by the relevant words of s 269-25(2)(b). I consider that the giving of the Notice to Mr Power fulfilled the legislative purpose of s 269-25. Insofar as s 269-25(1) precluded the commencement of the proceedings before a written notice under s 269-25 had been given, that prerequisite was satisfied in the present case. The decision of the primary judge in so deciding was not erroneous.
In the circumstances, it is unnecessary to consider the possible application of s 25C of the Interpretation Act. Section 25C provides that, where an Act prescribes a form, strict compliance with the form is not required and substantial compliance is sufficient. A question would arise as to whether s 269-25 prescribes a form. On one view, the provision does not prescribe a form, but merely specifies information to be contained in a document (see BW Esler Services Pty Limited v Dulhunty [2000] NSWCA 349, Nameless, Shameless and Legless Pty Limited v 2 Roslyn Street Pty Limited [2004] NSWSC 519 and Sydney West Area Health Service v Staracek [2008] NSWSC 744; 73 NSWLR 68). Even if it could be said that s 269-25 prescribes a form, the question would be whether there has been substantial compliance. For the reasons given above, it is not an essential requirement of s 269-25(2)(b) that the source of the liability of the recipient must be expressly specified. There has been substantial compliance with the requirements of s 269-25.