GOODIN & ANOR v FC of T & ANOR
Judges:Pagone J
Court:
Supreme Court (Vic)
MEDIA NEUTRAL CITATION:
[2002] VSC 241
Pagone J
In this proceeding the plaintiffs challenge the validity and effectiveness of a notice dated 16 July 2001 (``the notice'') issued by the first defendant, the Commissioner of Taxation, under section 260-5 of the Taxation Administration Act 1953 (``the Administration Act'') to the second defendant, Coppard Law Pty Ltd, a corporation trading as ``Willerby's Barristers & Solicitors''.
2. The plaintiffs are the joint and several liquidators of ACN 006 483 245 Pty Ltd, formerly known as Korumburra Hotel Pty Ltd (``the company''). The Commissioner, the first defendant in the proceeding, claims that the Commonwealth was owed a debt on 16 July 2001 by the company for taxes and charges.
3. On 23 April 2001 the company sold its business and property on which the business was conducted. The second defendant was the company's solicitor in respect of the sale and in that capacity received $121,000 on 22 May 2001 as the deposit payable to the company under the terms of the contract. The sale was conditional upon a number of matters, including the obtaining of approvals for the transfer of a liquor licence, the obtaining of a gaming licence and the obtaining of an operating agreement with Tabcorp. These were eventually obtained and the contract became unconditional in early September 2001 when the balance of the purchase moneys were paid to the second defendant in its capacity as the company's solicitors.
4. On 16 July 2001 the Commissioner sent the notice disputed in this proceeding. As at that date the second defendant held the $121,000 previously mentioned which it had received as the company's solicitor. The notice was sent to the second defendant in purported exercise of the Commissioner's power under section 260-5 of the Administration Act (forming part of Division 260).
A. Quantum of amount
5. The preconditions to the issue of a notice under section 260-5 include, relevantly, that an amount of a tax-related liability was payable to the Commonwealth. The burden of proving the absence of the conditions precedent to the exercise of the power falls upon the party which asserts it, namely, the plaintiffs. They do not contend that the company owed the Commonwealth an amount of a tax-related liability, but assert that the notice is invalid because on its face it demands a larger sum than was owing.[1]
6. A notice issued under section 260-5 imposes heavy obligations upon its recipient and denies to another the entitlements which would otherwise be received. It cannot be supposed that the legislature intended for the Commissioner to use the power to compel the payment of more than the tax which was actually due at the date of the issue of the
ATC 4574
notice. A question which arises in this proceeding, however, is whether a notice is invalid if it purports to require the recipient to pay to the Commissioner more than is owed to the Commonwealth at the date on which the notice is issued.7. The notice in dispute in this proceeding informed the recipient that the company owed to the Commonwealth $234,405.95. On the date of issue of the notice, 16 July 2001, the amount due to the Commonwealth was $231,405.95. The higher amount stated in the notice was that shown in the Commissioner's computer records on 16 July 2001 which had not taken into account, or had not yet processed, (a) two amounts of $1,000 which the Commissioner's computer records reveal had been received on 21 June 2001 and 11 July 2001 but which were not processed until 18 and 23 July 2001 respectively, and (b) a cheque for $1,000 which Mr Tozzi (the ATO officer who issued the notice) recorded as having been received on 28 June 2001 but for which there is no specific record of processing. There is no doubt that Mr Tozzi genuinely believed that the amount owed to the Commonwealth as at 16 July 2001 was that stated in the notice. There is also no doubt on the evidence before me that the amount stated in the notice was not the amount owed to the Commonwealth on 16 July 2001, and that the amount which was actually owed in this case (although perhaps not in others) could have been ascertained before issuing the notice. The correct amount owing could have been ascertained because the Commissioner's records contained details of the receipt of the two $1,000 amounts received on 21 June and 11 July, and Mr Tozzi had himself recorded the receipt of the $1,000 cheque in his narratives although it is not clear what has happened to that cheque thereafter. Mr Tozzi, or some other person in the office, could have undertaken the process of ensuring that the amount shown as owing in the ATO computer on 16 July 2001 was the correct amount by a manual process of checking and reconciliation.
8. Whether a notice issued under Division 260 is invalid if the Commissioner has stated the wrong amount as that owing has caused me much anxious concern. I have little doubt that the ordinary case contemplated by the Division is that where the amount stated as the debt is the correct amount owing.[2]
9. The approach taken by Hill J to the construction of the predecessor provision to Division 260 in DFC of T v Government Insurance Office of New South Wales & Anor[3]
ATC 4575
recipient of a notice under the Division is taken to be authorised not only by the debtor to the Commonwealth, but also by any other person who is entitled to all or any part of the amount. Where a notice, such as this one, requires payment of an amount more than that owed by the Commonwealth debtor, to that extent ``the Commissioner would presumably be required to return the money to the taxpayer [or perhaps to the recipient of the notice] as being money paid under a mistake of law''.[6]10. It is, therefore, strictly unnecessary for me to consider a further argument put to me for the Commissioner that the amount stated in the notice was the correct amount. The basis of this argument was that the two $1,000 amounts processed after 16 July 2001 could be disregarded by the Commissioner because, as it was asserted by counsel for the Commissioner, payment occurred not upon receipt of the cheques but upon their processing. In deference to the arguments on this issue, I should indicate that I do not accept the argument put for the Commissioner. Payment occurred upon receipt of the cheques.[7]
B. Identity of recipient of notice
11. The validity of the notice is also challenged by the plaintiffs on the basis of misdescription of the person to whom it was addressed. The notice was addressed as follows:
``THE SENIOR PARTNER WILLERBY'S BARRISTERS AND SOLISITORS [sic.] 2/474 Nepean Highway Frankston Vic. 3199''
This description (absent the address but repeating the misspelling of ``solicitors'') was repeated in the body of the notice itself where the person upon whom the notice is made effective is then referred to as ``YOU'', being a third party who owes money or may later owe money to the company. It is that person to whom the notice is addressed and upon whom the terms of the notice are made to operate. The plaintiffs contend that there is no such person as identified in the notice. ``Willerby's Barristers & Solicitors'' did exist as the registered business name of Coppard Law Pty Ltd, the second defendant, but it is a company (not a partnership) and, as such, has no senior partner.
12. A notice issued under Division 260 imposes heavy burdens upon its recipient, alters the rights of others and exposes the recipient to penal sanction for non-compliance.[8]
13. The description of the person to whom the notice is addressed is not a matter going to the nature of the recipient's obligation, but it does identify the person upon whom the obligation is imposed. It is essential, therefore, that the description of the person to whom the notice is addressed is itself clear and unambiguous. A trivial error in description will not suffice to invalidate the notice,[11]
14. In FC of T v Prestige Motors Pty Ltd[13]
``The weakness of the respondent's argument and, conversely, the strength of the Commissioner's argument, is that the provisions of the Act require, not that the name of the taxpayer be stated in the notice, but that the notice be served `upon the person liable to pay the tax' (s. 174(1)). The Full Court did not regard this as a decisive consideration. That was because Hill J. concluded that s. 177(1) would fail in its purpose unless the reference to `all the particulars of the assessment' in the sub- section included the name of the taxpayer. The purpose which his Honour attributed to the sub-section was to avoid the need in recovery proceedings for the Commissioner to prove that the taxpayer had a particular taxable income or net income in the case of a taxpayer trustee, or to debar the taxpayer
ATC 4576
from contesting that the amount of the taxable or net income as shown in the notice was the taxpayer's income or that tax was payable thereon. However, s. 177(1) does not require that the notice state the name of the taxpayer. Furthermore, s. 177(1) is a facultative provision; if the notice does not fall within the sub-section, the only consequence is that the Commissioner cannot rely upon the provision.This leads us to the conclusion that it is not essential to the validity of a notice of assessment that it state the name of the taxpayer liable to pay the tax. But we do not consider that this conclusion is a complete answer to the question which has arisen. That is because, on the view which we take of the provisions, it is necessary that the notice should bring to the attention of the person on whom it is served that the assessment to which it relates is an assessment of that person to tax. The principal purpose of the notice of assessment is to bring to the attention of the person on whom it is served that such person is liable to pay on the due date the amount of tax assessed in the notice on the income stated in the notice.... No doubt service of the notice on a taxpayer goes some way towards achieving this purpose. But whether the purpose is achieved in a given case must depend upon the form and contents of the particular notice of assessment. Thus, to take an example given by Hill J. in the Federal Court, a notice assessing A to tax but served on B instead could not stand as a notice assessing B to tax.''
[14]
(My emphasis) Ibid at ATC 4574; CLR 14-15.
The test for validity where there is a challenge to the description of the addressee of a notice under Division 260, by parity of reasoning, is whether the notice brings to the attention of the intended person that that person has a liability or duty. Whether a notice does so will depend upon a consideration of its form and content rather than what the individuals may subjectively have undertook or fortuitously guessed. It was said, with much force, in the case before me that here the misdescription of the person to whom the notice was sent was beyond salvage. In support of that proposition it was said, again with much force, that the Commissioner had within his power and control enough information to ensure that the notice was correctly addressed or, at the very least, to ascertain the correct name to which the notice should have been addressed. The Commissioner could easily have conducted a business name search to ascertain precisely the identity of the person conducting practice by the name in question. Indeed the evidence was that before the issue of the notice the Commissioner had received correspondence (to the attention of Mr Tozzi) from ``Willerby's'' which clearly and unmistakably identified Coppard Law Pty Ltd as the relevant legal person and Mr Coppard as the director.
15. The notice in this case should have been addressed to the proper officer of Coppard Law Pty Ltd, a corporation, rather than to the senior partner of a non-existent partnership. It is no answer to say that the description of the addressee as ``the senior partner'' was ancillary to the main description of the identity to whom the notice was addressed as ``Willerby's Barristers and Solisitors''. That description may have matched precisely (ignoring the misspelling of the word ``solicitors'') with the business name registered by Coppard Law Pty Ltd under the Business Names Act 1962 (Vic) but that was not a description of the entity upon whom the heavy obligations of the notice were intended to attach: it was, at best, its business name, not its name. The use of the registered business name in a notice may not be a sufficient irregularity or defect to result in invalidity in all cases.[15]
C. Spent notice
16. The next challenge to the validity of the notice depends upon a construction of its terms in light of the provisions in section 260-5, and in particular sub-section 260-5(4). In essence the argument is that upon the proper construction of the notice what is sought from the recipient is payment only of the $121,000 which the second defendant held on behalf of its client and not the balance of the proceeds of sale received upon settlement in September. Thus it is said that upon payment to the Commissioner of the $121,000 there was nothing further upon which the notice could operate.
ATC 4577
17. I am unable to accept the plaintiffs' argument on this matter. Sub-section 260-5(4) entitles the Commissioner to require the recipient of a notice to pay to him ``the available money''. The words ``available money'' are defined broadly in sub-section 260-5(3) and, on these facts, include both the deposit held at the time of the issue of the notice and the money subsequently received by the second defendant on behalf of its client at settlement of the sale in September 2001. The notice attempted in terms to attach its effect upon both the money owed by the recipient to its client at the date of issue of the notice as well as to money which would subsequently be owed to that person in the future. This was achieved by defining ``the available money'' at the top of the second page of the notice for its purposes as including both the amount which the second defendant then owed and also the amount which it may later have owed to Korumburra Hotel Pty Ltd. The notice went on to require the recipient of the notice to pay to the Commissioner either the sum of $234,405.95 or, if the available money was less than that amount, the whole of ``the available money''. Accordingly, I do not consider the notice to have been spent upon the Commissioner's receipt of the $121,000 which the second defendant initially held as its client's deposit upon the contract.
D. Non-registration of charge
18. The final challenge to the notice was initially the only basis upon which the notice was challenged when the proceeding was first commenced. The originating motion filed by the plaintiffs in December 2001 contained as its only ground for relief the contention that the notice was void as against the plaintiffs as liquidators ``by reason of s. 266 of the Corporations Act until, and unless, registered as required [by] that Act.'' The plaintiffs' argument on this point was as follows. The payment of moneys to the second defendant after the service of the notice resulted in there being a charge crystallised over those moneys. At the time that the moneys were received by the second defendant, the Commonwealth's debtor (Korumburra Hotel Pty Ltd) acquired property in the nature of a book debt which was subject to a charge in favour of the Commissioner. The argument then went on to contend that if that charge had been created by a specific charge made by the debtor, it would have been registrable pursuant to section 262 of the Corporations Act. No charge, however, was registered and consequently (so the argument continued) any charge arising as a result of the service of the notice was void as against the plaintiffs.
19. It was common ground that the service of a notice under Division 260 of the Administration Act had the effect of creating a charge over the deposit held by the second defendant of $121,000 as well as the subsequent proceeds of the settlement sum.[16]
20. The first of these contentions is, in my opinion, untenable in light of the definition of ``a charge on a book debt'' appearing in sub- section 262(4). Whether or not the charge is one falling within the exception found in sub- section 262(2)(a) (namely, as a charge ``arising by operation of law'') is an interesting question but depends first upon a consideration of whether the provisions in Part 2K.2 of the Corporations Act are to govern the operation of the Commissioner's powers under Division 260 of the Administration Act. That question does not turn upon which of these two provisions was enacted subsequently, but rather, ``on the true construction of the two laws and the fields of their operation.''[17]
``... Prima facie, a law which deals indifferently with companies and natural persons does not affect the regimes prescribed by laws dealing with bankruptcy and insolvency; a law of the former kind would have to manifest clearly an intention to affect those regimes before it would be held to do so.''
[18]
Ibid at ACLC 1,056; CLR 36.
In my opinion the regime created by Part 2K.2 of the Corporations Law does not modify or cut back the powers given to the Commissioner under Division 260 of the Administration Act. The provisions in that Division deal indifferently with companies and natural persons alike and, in my view, it can scarcely be considered that the legislature conferred upon the Commissioner powers to be exercised by reference to and subject to the
ATC 4578
registration requirement ordinarily imposed upon a company in consensual and bilateral agreements entered into by the company with other people. The very nature of the charge created by Division 260 militates against the construction that the Commissioner should seek the debtor's agreement or co-operation to have the charge registered. The obligation to register charges under the Corporations Act falls primarily upon the company creating the charge, or deemed to be creating the charge, rather than a upon a creditor having a statutory power to compel unilaterally the creation and enforcement of the charge. In such circumstances it seems to me that the registration provisions simply have no mandatory application to the Commissioner seeking to exercise his power under Division 260, although I see no reason why such a charge could not be registered if the Commissioner were able to do so and wished to do so.21. It is therefore unnecessary for me to consider whether the charge created by Division 260 may be described as one ``arising by operation of law'' within the meaning of sub- section 262(2)(a). Considerations relevant to this issue were discussed in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd.[19]
22. Accordingly I propose to declare that the notice was invalid and will hear counsel on the question of costs.
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