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DFC of T v DICK

Judges: Spigelman CJ
Santow JA

Basten JA

Court:
New South Wales Court of Appeal

MEDIA NEUTRAL CITATION: [2007] NSWCA 190

Judgment date: 28 June 2007

Basten JA

138. The short issue raised by this appeal is whether the Respondent could be relieved by the Court from his liability to pay the

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Commissioner, by way of penalty, an amount equal to the unpaid tax liability of a company of which he was a director, pursuant to s 222AOC(1) of the Income Tax Assessment Act 1936 (Cth) ( " the Assessment Act " ). The Court ' s power to relieve from liability for the civil penalty was said to be found in s 1318 of the Corporations Act 2001 (Cth). In my view s 1318 of the Corporations Act had no operation in relation to such a liability and the District Court was in error in concluding otherwise.

139. The operation and scope of s 1318 is to be identified in the present case by reference to the concurrent operation of Part VI of the Assessment Act . That involves the interrelationship of two enactments of the same legislature and the presumption, in the absence of any express intention to the contrary, that the Parliament intended both to operate in their terms:
Saraswati v The Queen (1991) 172 CLR 1 at 17;
Ferdinands v Commissioner for Public Employer (2006) 225 CLR 130 at [ 4 ] (Gleeson CJ), [ 18 ] (Gummow and Hayne JJ), [ 109 ] (Kirby J) and [ 158 ] (Callinan J).

140. The need to reconcile potentially conflicting statutory provisions may arise in a federation as between different levels of government, or between different laws of the same legislature, or with respect to different provisions in one Act. Inconsistency between Commonwealth and State legislation is addressed by s 109 of the Constitution; similar principles apply with respect to Territory laws: see, eg,
Northern Territory v GPAO (1999) 196 CLR 553 at [ 60 ] (Gleeson CJ and Gummow J). The reconciliation of provisions contained in one statute is exemplified by the treatment of privative clauses: see, eg,
Plaintiff S157/2002 v The Commonwealth (2003) 211 CLR 476 at [ 27 ] - [ 35 ] (Gleeson CJ) and [ 60 ] and [ 77 ] (Gaudron, McHugh, Gummow, Kirby and Hayne JJ) and [ 159 ] (Callinan J). (
Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at 7 also falls into this category.) Putting to one side questions of apparent internal inconsistency, the general assumption is that provisions found in different statutes of one legislature will operate according to their terms, but, in the absence of a clear indication to the contrary, without qualifying or diminishing the effect of other statutory schemes. Given the complexity of much modern litigation, it is unrealistic to assume that the drafter gave specific attention to, and intended to modify, an existing statutory scheme having a different subject-matter to that of the provision in contemplation.

141. This approach will have particular relevance in relation to a dispensing power, such as s 1318, contained in legislation having potentially broad operation, such as the Corporations Act . The potential for inconsistency with both Commonwealth and State laws was appreciated. To that end, express provision was made that, absent " direct inconsistency " the corporations legislation (which included the Corporations Act and parts of the ASIC Act) was " not intended to exclude or limit the concurrent operation of any law of a State or Territory " : s 5E(1) and (4). In addition, express attention was given to possible cases of direct inconsistency, with the general purpose of withdrawing the operation of the corporations legislation, in circumstances identified in s 5G. The operations of these provisions need not be pursued in the present case, but in circumstances where s 1318 might be thought to have potential relevance to duties imposed on a director under State law, the operation of Part 1.1A of the Corporations Act , which includes ss 5D-5I, will be important. For present purposes, it is sufficient to note that s 1318 will not, merely because it is contained in a Commonwealth Act, necessarily provide a mechanism applicable in relation to a liability arising under State law.

142. The intended operation of s 1318 must be decided primarily by reference to its own terms and those of the provisions imposing a liability on a director, in relation to which it is sought to be applied. The Court may relieve an officer of a company from liability pursuant to the power conferred by s 1318(1), where the person has " acted honestly " and " ought fairly to be excused " . The Assessment Act , on the other hand, has its own defences, expressed in quite different terms: s 222AOJ. Section 222AOJ(2) provides a defence where a director " because of illness or for some other good reason … did not take part in the management of the company " at a relevant time. There is a separate defence for a person who " took all reasonable steps to ensure that the directors

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complied with " their statutory obligations or there were no such steps that the person could have taken: s 222AOJ(3).

143. In this area, as in considering constitutional inconsistency, it is appropriate to look at the practical operation of potentially inconsistent provisions. In a practical sense, the provisions cannot operate together. The inconsistency must be resolved by denying s 1318 operation in relation to the liability of a director under ss 222AOB and 222AOC of the Assessment Act .

144. To confirm this conclusion, is it appropriate to consider the operation of the relevant provisions in their broader statutory context. Thus, the interrelationship of Divisions 8 and 9 of the Assessment Act and the Corporations Act are expressly dealt with in both Acts. In the Assessment Act , that recognition may be found in s 222ANA, set out by Santow JA at [ 34 * ] above. Similarly, it is reflected in Part 5.7B of the Corporations Act , which deals with voidable transactions of a company, and allows a court, on the application of a liquidator, to undo a company transaction, where the company is being wound up: Corporations Act , ss 588FE and 588FF. The court has power, under these provisions, to order a recipient of money to repay it. Pursuant to s 588F, a relevant transaction of a company may extend to a payment to the Commissioner of Taxation. Section 588FG(3) and (4) expressly recognise that such an order may affect a receipt by the Commissioner and s 588FGA provides for certain consequences in the event of such an order, including an indemnity by the directors in favour of the Commissioner. To that extent, there is express recognition that a power conferred under the Corporations Act , in relation to the winding up of a company, could affect a payment of tax by the company.

145. Those provisions, however, not only have no bearing on the liability of a director to pay a penalty under the Assessment Act , but in fact impose a liability on the directors of the company to indemnify the Commissioner in relation to any loss or damage suffered as a result of such an order: s 588FGA(2) and (3). The provisions reflect an intention that, where the exercise by the Court of a power conferred under the Corporations Act may work to the detriment of the Commissioner, the Commissioner ' s position is to be protected, by imposing liability on the directors. In this context, it seems unlikely that Parliament intended that s 1318 could operate so as to diminish the entitlements of the Commissioner.

146. One may also rely upon the legislative history in determining the proper scope of s 1318. The conclusion that s 1318 was not intended to operate in the present circumstances is supported by the history of that provision and its predecessors, as explained by Spigelman CJ. The predecessor of s 1318, in force when Part VI, Divisions 8 and 9 of the Assessment Act were enacted in 1993, was s 1318 of the Corporations Law . There was no necessary implication that that provision, then contained in State law, operated to qualify the effect of the newly enacted provisions of the Assessment Act , when they commenced.

147. Although the conclusion is not directly supported by authority, the characterisation of the Assessment Act , albeit in an earlier form, adopted by the High Court when addressing the operation of a Limitation Act in relation to an amount payable under the Assessment Act , gives guidance. A State Limitation Act would operate, if at all, by virtue of s 64 of the Judiciary Act 1903 (Cth), and s 64, although it is another Commonwealth law, has a different kind of operation to the Corporations Act . Thus, it operates across federal jurisdiction generally to fill what might otherwise have been gaps in Commonwealth law: see
Dao v Australian Postal Commission (1987) 162 CLR 317 at 331. The section operates " only if, and to the extent that, there be no directly applicable and inconsistent (in the relevant sense) Commonwealth law already regulating those circumstances " : Dao at 332.

148. In considering the question of a State Limitation Act in relation to proceedings for recovery of income tax and additional tax, the Court stated in
Deputy Commissioner of Taxation v Moorebank Pty Ltd 88 ATC 4443 ; (1988) 165 CLR 55 at 64:

" In particular, where a Commonwealth legislative scheme is complete upon its face, s 64 will not operate to insert into it some provision of State law for whose operation the Commonwealth provisions can, when properly understood, be seen to have left no

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room. Accordingly, the question arises whether the relevant provisions of the Assessment Act have effectively covered the field and left no room for the direct or indirect intrusion of provisions of State Limitation Acts to limit the time in which an action can be brought on behalf of the Commissioner of Taxation for unpaid income tax or additional tax. "

149. This was quite a different question from that which arose in the present case, involving different principles, including the prohibition on discrimination between States or parts of States: Constitution, s 51(ii). However, after concluding that there was no necessary direct inconsistency between a provision for recovery of unpaid tax and a statute imposing a limitation period, the Court continued (p 66):

" On the other hand, when one examines the general scheme of the Assessment Act provisions providing for collection and recovery of tax, it appears to us to be clear that there is no room for the importation into them of such State Limitation Acts provisions. The provisions of the Assessment Act relevantly cover the field. Indeed, the intrusion of State Limitation Acts provisions would significantly undermine the scheme for collection and recovery of tax which is contained in the Assessment Act. "

Their Honours also noted the effect which a limitation provision might have upon the general discretion conferred on the Commissioner to grant an extension of time to a taxpayer, which might extend beyond the limitation period: s 206.

150. The particular constitutional problem which arose in Moorebank , of potential differential operation across the States, does not arise where the relieving power is found in another Commonwealth Act having a general operation. On the other hand, the characterisation of the Assessment Act (as it then stood) as providing a comprehensive and exclusive statement of the circumstances in which the Commissioner was entitled to recover unpaid income tax, or statutory penalties imposed under the Assessment Act , has weight in relation to the attempt to import into the scheme of the Assessment Act the broad powers of a court to relieve against liability of a director.

151. In
Deputy Commissioner of Taxation v Keck 2006 ATC 4377 ; [ 2006 ] NSWSC 677 , (2006) 63 ATR 310 , an issue arose as to whether directors were liable under s 222AOC(1) where the directors alleged they had not received the penalty notices which constituted a pre-condition to their liability. That defence failed. McDougall J noted that a further defence relying on s 1318 of the Corporations Act had also been pleaded, but withdrawn in the course of the hearing: at [ 13 ] . In considering the appropriate costs order, his Honour stated at [ 44 ] :

" As I have noted, the defendants pleaded a defence based on s 1318 of the Corporations Act 2001 (Cth). That appeared to me, and I must say still appears to me, to be wholly misconceived. Section 1318(1) empowers the court to relieve a person of the consequences, in civil proceedings, of ' negligence, default, breach of trust or breach or duty ' in some circumstances. It may be doubted whether s 1318 has any application at all in the context of the ITAA 1936; in particular, so far as s 222AOE is concerned, because there is a separate defence provided by s 222AOJ which has not been pleaded. "

152. In my view the doubts expressed by McDougall J were soundly based and s 1318 has no relevant operation. Not only are specific defences prescribed by the Assessment Act , but no power is conferred on the Commissioner to remit any part of a penalty, liability for which arises pursuant to a relevant provision in Part VI, Div 9 of the Assessment Act . This statutory scheme is inconsistent with an intention to allow a Court to exercise a broad discretionary power to grant relief to a director in circumstances where the Assessment Act has otherwise imposed liability, subject to its own regime of defences.

153. In reaching this conclusion I have not sought to rely on the particular language of s 1318, other than the criteria on which the exercise of the power is conditioned. Such reliance would raise in stark terms the appropriateness of reliance on s 1318, dealing with civil proceedings, as opposed to the potential availability of s 1317S, dealing with

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relief from liability for contravention of a civil penalty provision, a point which as the Chief Justice notes, was not addressed by the parties.

154. I agree with the orders proposed by Santow JA.


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