Guss v. DCT

[2006] FCAFC 88
63 ATR 31

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(Judgment by: Edmonds J) Court:

Judges: Gyles J

Edmonds JGreenwood J

Subject References:
TAXES AND DUTIES
income tax and related legislation
prompt recovery, through estimates and payment agreements, of certain amounts not remitted
where Commissioner empowered to make estimate of amount
where making of estimate created liability upon company
where obligation imposed upon directors to cause company to pay estimate or enter administration or be wound up
where obligation enforced by penalty imposed upon directors
where Commissioner not entitled to recover penalty unless statutory notice given
whether decision to give notice reviewable under the Administrative Decisions (Judicial Review) Act 1977 (Cth).

Legislative References:
Administrative Decisions (Judicial Review) Act 1977 - 3; 5; 6
Income Tax Assessment Act 1936 - Part IV Div 9; 222AGA; 222AHA; 222APB; 222APC; 222APE

Case References:
Attorney-General (Cth) v Queensland - (1990) 25 FCR 125
Carmody v Mackellar - (1997) 76 FCR 115
DFCT v McArdle - (2003) 53 ATR 302
Federal Commissioner of Taxation v Pilnara Pty Ltd - (1999) 96 FCR 82
Forsyth v DCT - (2004) 62 NSWLR 132
Pacific Century Production Pty Ltd v Watson - (2001) 113 FCR 466
Re Excel Finance Corporation Ltd (rec and mgr apptd) -
Worthley v England - (1994) 52 FCR 69
Ross v Costigan - (1982) 59 FLR 184
Southern Farmers Group Ltd v Deputy Federal Commissioner of Taxation (SA) - (1989) 21 FCR 66
Australian Broadcasting Tribunal v Bond - (1990) 170 CLR 321
DFCT v Woodhams - (1999) 199 CLR 370
Evans v Friemann - (1981) 53 FLR 229
Griffith University v Tang - (2005) 221 CLR 99
Industrial Equity Ltd v Commissioner of Taxation - (1990) 170 CLR 649
Ricegrowers Co-operative Mills Ltd v Bannerman and Trade Practices Commission - (1982) 38 ALR 535
Hutchins v Collins, Deputy Commissioner of Taxation - (1996) 65 FCR 269
Director-General for Social Services v Chaney - (1980) 31 ALR 571
Salerno v National Crime Authority - (1997) 75 FCR 133
Scharer v State of New South Wales - (2001) 53 NSWLR 299
Woodhams v DCT - [1998] 4 VR 309
Guss v Deputy Commissioner of Taxation - [2005] FCA 1499

Judgment date: 8 June 2006

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Judgment by:
Edmonds J

INTRODUCTION

[19] This is an appeal from a judge of the Court (Sundberg J) dismissing as incompetent an application under the Administrative Decisions (Judicial Review) Act 1977 (Cth) ('the ADJR Act') for an order of review: O 54 r 4 of the Federal Court Rules: Guss v Deputy Commissioner of Taxation [2005] FCA 1499. The basis of his Honour's conclusion that the application was incompetent appears from the final paragraph ([27]) of his Honour's reasons that neither of the decisions sought to be reviewed is 'a decision of an administrative character made ... under an enactment': See the definition of the phrase 'decision to which this Act applies' in s 3(1) and s 5(1) of the ADJR Act.

THE APPLICATION

[20] The application sought an order in respect of two decisions of the respondent:

(a)

[The decision] [o]n or about 28 June 2004 to issue and serve on me a Notice of Director's Liability to pay a Penalty pursuant to section 222APE of the Income Tax Assessment Act 1936 ... ("the Notice") in respect to amounts said to be owing to the Respondent by Bongania Pty Ltd ["Bongania"] ... ["the first decision"].

(b)

[The decision] [o]n 20 July 2004 to institute against me proceedings in the Melbourne Magistrates Court being proceedings No S 01771028, alleging a debt against me by reason of a failure to comply with the Notice ["the second decision"].

[21] The application contained no grounds of review. It was supported by an affidavit of the appellant asserting that an officer of the respondent involved in making 'the decisions' was activated by bad faith.

THE PRIMARY JUDGE

[22] The learned primary judge held that the first decision was not reviewable. In his Honour's words (at [17]):

[17] ... It is not a substantive determination. There is no application, inquiry or dispute that is determined by or as a result of it. It is a mere procedural formality, in the nature of a warning to the applicant that recovery proceedings will be taken unless the company's liability has been discharged or one of the other things mentioned in s 222APE(1)(b) has occurred.

[23] His Honour held that the second decision was also not reviewable. In his Honour's words ([at 18]):

[18] Save that the relevant provision in the present case is s 255-5(1) and (2) of the [Taxation Administration Act 1953 (Cth)] rather than ss 208 and 209 of the [Income Tax Assessment Act 1936 (Cth)] considered in [ Golden City Car & Truck Centre Pty Ltd v Deputy Commissioner of Taxation (1999) 99 ATC 4131], the observations of Cooper J are applicable here. Sections 255-5(1) and (2) of the TAA are equivalent in effect to s 208 and 209 of the ITAA.

THE APPEAL

[24] The appellant's appeal is confined to his Honour's conclusion on the first decision. The notice of appeal contains five grounds:

1.

The primary judge erred in finding that the respondent's decision to issue and serve a Notice of Director's Penalty pursuant to s 222APE of the Income Tax Assessment Act 1936 (Cth) ('the ITAA') ('the penalty notice') was not a reviewable decision pursuant to the Act.

2.

His Honour erred in finding that the subject decision was not a substantive determination.

3.

His Honour erred in finding that the subject decision was a mere procedural formality.

4.

His Honour erred in not finding that the 'decision' was 'operative and determinative' to give rise to a liability pursuant to the provisions of the ITAA or the Taxation Administration Act 1953 (Cth) ('the TAA').

5.

His Honour erred in not finding that the 'decision' was conduct under the ITAA for the purposes of making a decision to which the ADJR Act applies.

[25] On the hearing of the appeal the first ground was only pressed by reference to the second, third and fourth grounds and the fifth ground was, correctly in my view, abandoned. The appellant's application under the ADJR Act sought review of two decisions of the respondent - the first decision and the second decision: s 5(1) of the ADJR Act. The application did not seek review of conduct engaged in for the purpose of making a decision to which the ADJR Act applied: cf, s 6(1) of the ADJR Act. The Act is predicated on there being a true dichotomy between a decision on the one hand and conduct on the other.

THE LEGISLATION AND ITS FRAMEWORK

[26] The relevant legislative provisions and their framework were set out by the learned primary judge at [4]-[9] of his reasons.

[4]

Division 8 of Part VI of the [ITAA] (ss 222AFA to 222 AMB) is headed "Prompt recovery, through estimates and payment agreements, of certain amounts not remitted". Subdivision A - "Object and interpretation" - consists of ss 222AFA to 222AFC. Section 222AFA gives an overview of Division 8:

(1)

The purpose of this Division is to enable the Commissioner to take prompt and effective action to recover amounts not remitted as required by Divisions 1AAA, 3B and 4 of this Act, or Part 2-5 in Schedule 1 to the Taxation Administration Act 1953.

(2)

It does so by empowering the Commissioner to make an estimate of the amounts, and to recover the amount of the estimate.

(3)

Although an estimate creates a liability distinct from the underlying liability to remit amounts, the person liable can ensure that the Commissioner does not keep more than those amounts.

(4)

This Division also empowers the Commissioner to agree to a person paying off over a period liabilities under:

(a)

Division 1AAA, 3B or 4; or

(b)

this Division; or

(c)

Part 2-5 in Schedule 1 to the Taxation Administration Act 1953.

[5]

Subdivision B - "Making, reducing and revoking estimates" - consists of ss 222AGA to 222AGG. Section 222AGA(1) provides:

If the Commissioner has reason to suspect that:

(a)

a person (the person liable ) has become liable under a remittance provision to pay an amount to the Commissioner; and

(b)

the liability to pay that amount remains undischarged after the due date;

the Commissioner may make what he or she thinks is a reasonable estimate of the unpaid amount of that liability.

A "remittance provision" includes a provision in Sch 1 to the Taxation Administration Act 1953 (TAA), s 16-70, which deals with payment to the Commissioner of amounts withheld under Div 12 [of Sch 1] to the TAA. Where the Commissioner has made an estimate, notice thereof must be given to the person liable: s 222AGB.

[6]

Section 222AHA(1), which is in Subdivision C - "Recovering unpaid amount of estimate" - provides:

If the Commissioner makes an estimate and sends notice of it to the person liable or to the person's trustee, the person must pay to the Commissioner the amount of the estimate. This liability is called a liability to pay an estimate.

[27] I interpose that s 222AHA(2) provides:

A liability to pay an estimate is separate and distinct from the liability to which the estimate relates. It is separate and distinct for all purposes. For example, the Commissioner may take proceedings to recover the unpaid amount of the estimate, proceedings to recover the unpaid amount of the liability to which the estimate relates, or both.

[28] His Honour continued:

[7]

Division 9 (ss 222ANA to 222AQD) is headed "Penalties for directors of non-remitting companies". Subdivision A - "Object and interpretation" - consists of ss 222ANA to 222ANB. Section 222ANA gives an overview of Division 9:

(1)

The purpose of this Division is to ensure that a company either meets its obligations under Division 1AAA, 3B, 4 or 8 of this Act, or under Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953 , or goes promptly into voluntary administration under Part 5.3A of the Corporations Act 2001 or into liquidation.

(2)

The Division imposes a duty on the directors to cause the company to do so. The duty is enforced by penalties. However, a penalty can be recovered only if the Commissioner gives written notice to the person concerned. The penalty is automatically remitted if the company meets its obligations, or goes into voluntary administration or liquidation, within 14 days after the notice is given.

(3)

A penalty recovered under this Division is applied towards meeting the company's obligations under the relevant Division. Conversely, amounts paid by the company reduce the amount of a penalty.

(4)

Sections 220AAZA, 221YHZJ and 221YR of this Act, and Part 4-15 in Schedule 1 to the Taxation Administration Act 1953, provide for the recovery of amounts payable under this Division.

[8]

Subdivision C - "Company failing to pay estimate under Division 8" - consists of ss 222APA to 222API. The Subdivision applies if a company becomes liable under s 222AHA to pay an estimate: s 222APA. Section 222APB provides in part as follows:

(1)

The persons who are directors of the company from time to time on and after the day when the Commissioner sent to the company notice of the estimate must cause the company to do at least one of the following within 14 days after that day:

(a)

pay to the Commissioner the amount of the estimate;

(b)

make an agreement with the Commissioner under section 222ALA in relation to the company's liability to pay the estimate;

(c)

appoint an administrator of the company under section 436A of the Corporations Act 2001;

(d)

begin to be wound up within the meaning of that Act.

...

(3)

If this section is not complied with before the end of the 14 days, the persons who are directors of the company from time to time after the 14 days continue to be under the obligation imposed by subsection (1) until this section is complied with.

[9]

Section 222APC provides that if s 222APB is not complied with before the end of the 14 days, each person who was a director of the company at any time during that period is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the estimate. Section 222APE(1) provides in part:

The Commissioner is not entitled to recover from a person a penalty payable under this Subdivision until the end of 14 days after the Commissioner gives to the person a notice (the penalty notice) that:

(a)

sets out details of the unpaid amount of the estimate; and

(b)

if the penalty notice is given within 14 days after the Commissioner sent to the company notice of the estimate - states that at the end of those 14 days the person will become liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount unless:

(i)

the company's liability to pay the estimate has been discharged; or

(ii)

an agreement relating to that liability is in force under section 222ALA; or

(iii)

the company is under administration within the meaning of the Corporations Act 2001; or

(iv)

the company is being wound up; and

...

(d)

states that the penalty will be remitted if, at the end of 14 days after the penalty notice is given:

(i)

the company's liability to pay the estimate has been discharged; or

(ii)

an agreement relating to that liability is in force under section 222ALA; or

(iii)

the company is under administration within the meaning of the Corporations Act 2001; or

(iv)

the company is being wound up.

[29] His Honour summarised these provisions (at [10] of his reasons) in the following way:

[10]

... once a company becomes obliged to pay the amount of the estimate under s 222AHA, the provisions of Subdivision C of Div 9 (ss 222APA to s 222API) apply. The directors of the company must cause it to do at least one of the things set out in s 222APB within fourteen days after notice is given under s 222AGB. If they fail to do so, they become liable to pay a penalty: s 222APC. But the Commissioner cannot recover the penalty unless he gives notice under s 222APE which is not complied [with] within fourteen days of the giving of the notice.

[30] At [11] his Honour said:

[11]

Part 4-15 of Schedule 1 to the TAA (ss 250-1 to 265-65) (referred to in s 222ANA(4) of the ITAA) deals with "Collection and recovery of tax-related liabilities and other amounts". Section 255-5 of the TAA provides:

(1)

An amount of a tax-related liability that is due and payable:

(a)

is a debt due to the Commonwealth and

(b)

is payable to the Commissioner.

(2)

The Commissioner ... may sue in his or her official name in a court of competent jurisdiction to recover an amount of a tax-related liability that remains unpaid after it has become due and payable.

Section 250-10 lists various "tax-related liabilities". One of them is "penalty under Subdivision C of Part 9 ... 222APE".

THE FACTS

[31] The relevant facts do not appear to be in dispute and are set out at [12] of his Honour's reasons:

[12]

At all relevant times the applicant was the sole director of Bongania Pty Ltd On about 24 June 2004 the respondent estimated, pursuant to s 222AGA of the ITAA, the amount of the liability of Bongania under s 16-70 of Schedule 1 to the TAA. The respondent sent written notice of the estimate to Bongania in accordance with s 222AGB of the ITAA. Accordingly Bongania became obliged, pursuant to s 222AHA, to pay the amount of the estimate. The applicant became obliged, pursuant to s 222APB, to cause Bongania to do at least one of the things listed in s 222APB within fourteen days. He did not do so, and accordingly he became liable, pursuant to s 222APC, to pay by way of penalty an amount equal to the unpaid amount of the estimate. On or about 28 June 2004 the respondent sent written notice to the applicant in accordance with s 222APE. A covering letter informed the applicant that action to recover the penalty would be taken without further notice if, after the end of fourteen days from the date the penalty notice is given to him, the penalty had not been remitted. On 20 July 2004 the respondent instituted proceedings in the Magistrates Court of Victoria for recovery of the unpaid amount.

REASONING

[32] Before addressing the specific grounds of appeal, it is, I think, appropriate to address the argument before the Court on the hearing of the appeal going to the proper characterisation of the 'penalty', that is, whether it is a penalty or a tax, and the effect of a penalty notice given pursuant to s 222APE on the recipient director's rights and obligations.

[33] While I am not sure that anything turns on this from the point of view of the resolution of the ultimate issue, the appellant argued that the penalty was, in essence, the imposition of a tax on the appellant director. The respondent, on the other hand, contended that it was a true penalty and not a tax.

[34] The issue of whether the penalty imposed by s 222AOC (the Subdiv B counterpart of s 222APC in Subdiv C) was a penalty or a tax was considered by the Victorian Court of Appeal in Woodhams v DCT [1998] 4 VR 309 and Phillips JA, with whom Tadgell JA and Batt JA agreed, concluded that it was a penalty and not a tax (at 321, 322). There is no reason to think that the same conclusion should not be reached with respect to the penalty imposed by s 222APC.

[35] The appellant argued that the giving of the penalty notice affected legal rights or obligations of the recipient director in the sense that service of such a notice is a statutory pre-condition to recovery of the penalty.

[36] The respondent argued that the purpose of the penalty notice was to inform the recipient director of the matters set out in paras (a), (b) and (d) or, alternatively (a), (c) and (d) of s 222APE(1). It was further contended on behalf of the respondent that the notice does not confer, alter or affect legal rights or obligations of the recipient director, in the sense that the notice does not:

(a)

require any compliance, or payment, by the director. The obligation to cause the company to meet its obligations or do one of the other things arises under s 222APB;

(b)

create a liability to pay a penalty. Liability is imposed by s 222APC and arises as a consequence of the failure of the director to comply with s 222APB within the time prescribed;

(c)

create a right of action in the respondent. The right of action arises under s 222APC and s 255-5 of the TAA.

[37] Reliance was placed by the respondent on what was said by the High Court in DFCT v Woodhams (1999) 199 CLR 370 at [34]-[36] in relation to s 222AOE, which is the Subdiv B counterpart of s 222APE in Subdiv C:

[34]

The primary source of guidance as to the statutory purpose of the notice before action required by s 222AOE is to be found in s 222ANA. Division 9 seeks to achieve the object that either the deducted amounts are remitted or paid to the Commissioner or the company is promptly taken out of the control of the directors and dealt with under the insolvency laws.[35] The notice in question is addressed to a director of the company. Such a person will ordinarily have access to information concerning the company's liabilities. The notice does not create a liability to pay a penalty, and if there is to be action to recover the penalty under s 221R it will be taken in the appropriate civil jurisdiction. In that event, the rules of court will require the elements of the cause of action to be pleaded and particularised in the ordinary way. A notice before action is not intended to serve the purpose of a statement of claim.[36] The first purpose of the notice is to inform the recipient of the unpaid amount of the company's liability under the remittance provisions, and of the recipient's liability to a penalty in the same amount. The second purpose, consistently with s 222ANA, is to inform the recipient of the alternative courses available, as set out in s 222AOE(b), which will result in remission of the penalty, the object being to encourage the recipient to take such steps as are necessary to bring about the result that one or other of those courses is followed.

See too DFCT v McArdle (2003) 53 ATR 302 at 306 [14], [15], per Davies JA, with whom Williams JA and Gerrard JA agreed; Forsyth v DCT (2004) 62 NSWLR 132 per Spigelman CJ at [42], [46] and [47].

[38] In my view, the giving of the penalty notice does not confer, alter or affect legal rights or obligations of the recipient director. The fact it removes a bar in the way of the respondent to take recovery action is, in my view, procedural and irrelevant to the ultimate issue.

[39] In saying that a decision must be a substantive determination before it is reviewable under the ADJR Act, his Honour undoubtedly had in mind what was said in Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 337 per Mason CJ that an '... essential quality of a reviewable decision is that it be a substantive determination'. A little later the Chief Justice explained what he meant by way of contrast with a procedural determination:

To take an example, the refusal by a decision-maker of an application for an adjournment in the course of an administrative hearing would not constitute a reviewable decision, being a procedural matter not resolving a substantive issue and lacking the quality of finality.

[40] While it was concerned with the Judicial Review Act 1991 (Qld), recently in Griffith University v Tang [2005] 213 ALR 724, Gummow, Callinan and Heydon JJ said (at [89]):

[89]

The determination of whether a decision is "made ... under an enactment" involves two criteria: first, the decision must be expressly or impliedly required or authorised by the enactment; and, secondly, the decision must itself confer, alter or otherwise affect legal rights or obligations, and in that sense the decision must derive from the enactment. A decision will only be "made ... under an enactment" if both these criteria are met. It should be emphasised that this construction of the statutory definition does not require the relevant decision to affect or alter existing rights or obligations, and it will be sufficient that the enactment requires or authorises decisions from which new rights or obligations arise. Similarly, it is not necessary that the relevantly affected legal rights owe their existence to the enactment in question. Affection of rights or obligations derived from the general law or statute will suffice.

[41] On the view I take, the first of these criteria is satisfied in the present case, but the second is not. When their Honours said: '... the decision must itself confer, alter or otherwise affect legal rights or obligations ...', they could only be speaking from the point of view of the person who is 'aggrieved by [the] decision ...', not the decision-maker.

[42] The assertion that his Honour erred in not finding that the first decision was operative and determinative to give rise to a liability pursuant to the provisions of the ITAA or the TAA is again a reference to what was said by Mason CJ in Bond, supra, where the Chief Justice said (at 337):

... a reviewable "decision" is one for which provision is made by or under a statute. That will generally, but not always, entail a decision which is final or operative and determinative, at least in a practical sense, of the issue of fact falling for consideration. A conclusion reached as a step along the way in a course of reasoning leading to an ultimate decision would not ordinarily amount to a reviewable decision, unless the statute provided for the making of a finding or ruling on that point so that the decision, though an intermediate decision, might accurately be described as a decision under an enactment.

[43] I do not find this extract from his Honour's judgment to be as helpful in resolving the ultimate issue on the facts of this case, as it appears to have been in resolving the ultimate issue on the facts in Bond. Here, the giving of the notice did not operate to give rise to a liability on the part of the appellant. No liability existed on the part of the appellant after the giving of the notice that did not exist prior to the giving of the notice by reason of the operation of s 222APC. The notice did not itself create any liability for the appellant; nor did it affect any existing right of the appellant, or create any right or obligation in the appellant going forward.

[44] It follows, in my view, that none of the grounds of appeal can be sustained and the appeal must be dismissed. The appellant must pay the respondent's costs of the appeal.