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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

Santow JA

Introduction

57. There are two principal issues in this appeal:

  • (a) does the Court ' s power to grant relief under s 1318 of the Corporations Act 2001 ( " the Act " ) extend to granting relief to a director rendered liable for penalty in relation to tax moneys withheld from employees (PAYG) and not remitted to the Tax Commissioner under the provisions of Divisions 8 and 9 of the Income Tax Assessment Act 1936 ( " ITAA " ), and if so

  • ATC 4825

    (b) should that relief have been extended in the circumstances of this case?

58. The Deputy Commissioner of Taxation challenges the primary judge Johnstone DCJ ' s conclusion in favour of the respondent, Mr Dick, on both these questions. If that challenge succeeds on the first question, which is essentially a question of construction, the second question concerning the exercise of discretion does not need to be answered.

59. Section 1318 of the Act is in the following terms:

" Part 9.5 - Powers of Courts

1318 Power to grant relief

  • (1) If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person ' s appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.
  • (2) Where a person to whom this section applies has reason to apprehend that any claim will or might be made against the person in respect of any negligence, default, breach of trust or breach of duty in a capacity as such a person, the person may apply to the Court for relief, and the Court has the same power to relieve the person as it would have had under subsection (1) if it had been a court before which proceedings against the person for negligence, default, breach of trust or breach of duty had been brought.
  • (3) … … …
  • (4) This section applies to a person who is:
    • (a) an officer or employee of a corporation; or
    • (b) an auditor of a corporation, whether or not the person is an officer or employee of the corporation; or
    • (c) an expert in relation to a matter:
      • (i) relating to a corporation; and
      • (ii) in relation to which the civil proceeding has been taken or the claim will or might arise; or
    • (d) a receiver, receiver and manager, liquidator or other person appointed or directed by the Court to carry out any duty under this Act in relation to a corporation. "

60. Section 1318 of the Act needs to be read alongside the relevant provisions of Divisions 8 and 9 of Part VI ITAA. The latter were passed on 1 July 1993. Following passing by the Commonwealth of the Corporations Act in 2001 pursuant to referred power, both the latter and the ITAA constituted legislation passed by the same legislature, namely the Commonwealth. However, earlier progenitors of s 1318 were the product of State legislation originating from the United Kingdom and which predated the relevant provisions of the ITAA.

61. An accurate description of how Divisions 8 and 9 of the ITAA operate, taken from the respondent ' s written submissions, is as follows:

" Division 9 of Pt VI of the Income Tax Assessment Act 1936 ( " the ITAA " ) imposes a duty on the directors of a company to ensure that the company either meets its obligation under Div 16 of Taxation Administration Act 1953 (Cth) ( " the TAA " ) to remit each deduction made under Div 12 of the TAA by the due date or takes other specified remedial action; s 222AOB ITAA. Non-compliance with the duty results in each director of the company being automatically ' liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company ' s liability ' ; s 22AOC(1),

However, the Commissioner is not entitled to recover that penalty without giving written notice to the director setting out ' details of the unpaid amount of the liability ' and the options available; s 222AOE. The penalty is then automatically remitted if the company meets its obligations or takes the other remedial action within 14 days after the notice is given; s 222AOG.

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The TAA makes an amount of penalty imposed by Div 9 of Pt VI of the ITAA a debt due to the Commonwealth payable to the Commissioner; s 255-5(1) of Sch 1 TAA and provides that the amount may be recovered at the suit of a Deputy Commissioner in ' a court of competent jurisdiction ' ; s 255-5(2) of Sch 1 TAA

62. The background to these legislative amendments bringing in this scheme is described in
Deputy Commissioner of Taxation v George (2002) 55 NSWLR 511 ; 2002 ATC 4930 where Gzell J (with whom Handley JA and Giles JA agreed) observed:

" Section 221P gave the Commissioner priority in bankruptcy and in a winding up for PAYE deductions which had not been remitted to him or used to buy tax stamps. Division 9 was introduced as a substitute for that priority by the Insolvency (Tax Priorities) Legislation Amendment Bill 1993. In introducing the bill to the Parliament, the then Minister for the Arts and Administrative Services, Senator McMullan said in his second reading speech ( Senate Weekly Hansard No 3, 1993 p880):

' The Bill will also make company directors liable for deductions made by their company and not remitted to the Commissioner. Currently, directors can be convicted in relation to their company ' s non payment of amounts deducted and can be ordered by a court to pay reparation equal to the deductions not remitted. This new measure will achieve this result more efficiently.

Consistent with the theme of the recent amendments to the Corporations Law, this measure will ensure solvency problems are confronted earlier and the escalation of debts will be prevented … '

… An early sign of problems in a company is its living on the false reserves of non-remitted PAYG withholdings. "

63. That policy is also expressed in s 222 ANA(1) of Division 9, namely " to ensure that a company meets its obligations … or goes promptly into voluntary administration … or into liquidation. "

64. The appellant advances the following submissions in support of its contention that s 1318 is incapable of application to afford relief from liability arising under Divisions 8 and 9 of ITAA:

  • (a) The proceedings giving rise to the liability of the respondent Mr Dick under the ITAA were not proceedings " for " a default or a breach of duty as required by s 1318 of the Act. Rather they were civil proceedings to recover or enforce a statutory liability to pay a penalty that had earlier arisen by force of Divisions 8 and 9 ITAA, without necessity for civil proceedings to bring that liability about. A corollary of that argument is that there was neither default nor breach of duty, as required by s 1318.
  • (b) Until this occasion, s 1318 has never been applied " outside the context of the Corporations Act 2001 " (appellant ' s written submissions para 19). Even if there were a default or breach of duty it arises under the ITAA and outside the corporations law context. It was not enough that the duty it imposes be required of directors collectively of a company to cause that company either to remit unpaid tax withheld or go into administration or liquidation, being a duty sanctioned by individual penalty on each director, subject to ITAA defences.
  • (c) Divisions 8 and 9 of Pt VI of the ITAA:
    • (i) constitute an exhaustive and specific legislative regime coming into operation on 1 July 1993 consequent upon the abandonment of the priority for group tax which the Commissioner had enjoyed under s 221P and so was not intended to be intruded upon by the later general provisions of s 1318 of the Corporations Act 2001;
    • (ii) accepting that the specific provisions of Divisions 8 and 9 ITAA predate the general provisions of the current s 1318 of the Corporations Act 2001 (though based on earlier legislation), that later general enactment is not to be treated as impliedly repealing those earlier specific legislative provisions of the ITAA; rather these specific provisions of the ITAA invoke the maxim generalia specialibus non derogant , so as not to be deprived of effect;
    • (iii) that result is reinforced by repugnancy or implied contradiction between the specific provisions of Divisions 8 and 9 ITAA and the general dispensing power of s 1318.

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65. The further contention of the appellant is that if s 1318 were to apply, the primary judge erred in exercising that discretion to dispense in favour of the respondent.

Salient facts

66. These are essentially undisputed in their outline below.

67. The respondent was a director of the Northern Spirit Football Club 2000 Pty Ltd ( " the Company " ) between 19 January 2001 and 14 March 2003. Further uncontroversial details as to the respondent ' s working history, in particular in relation to his involvement with football in Australia, may be found at paragraphs 27-50 of the appellant ' s written submissions, as are further details as to the background of the Company at paragraphs 41-51.

68. During the period 1 June 2002 to 31 March 2003, the Company failed to remit to the Commissioner of Taxation by the relevant due dates, monthly PAYG income tax deducted from the salaries and wages of its employees.

69. As a director of the Company during that period, the respondent possessed a duty pursuant to s 222AOB(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA) to ensure that the Company either remitted the PAYG amounts or took other steps under s 222AOB(1) ITAA to remediate the situation.

70. The respondent failed to act under s 222AOB(1), and as a result the appellant took the steps below to procure from the respondent a penalty amount of $ 141,295.19, being equal to the PAYG amounts withheld by the Company during his period as director.

71. The respondent denied liability below, first arguing unsuccessfully that he was entitled to the defence under s 222AOJ(2) ITAA, namely that for a good reason he had not participated in the management of the Company over the relevant period.

72. However, the respondent successfully argued below in the alternative that he ought fairly to be excused from any default under the ITAA. The primary judge concluded that the Court had a discretion to grant relief to the respondent under s 1318 Corporations Act 2001 (Cth), and that it should be exercised in the respondent ' s favour. Both determinations are challenged on appeal.

73. Before commencing the recovery proceedings, the Commissioner gave to the respondent three separate notices covering PAYG deductions made but not remitted by the Company during the following periods:

Date of DPN Period of Deduction Total Amount on DPN
23 November 2002 June, August, September 2002 $ 108,838.63
23 January 2003 October, November 2002 $ 103,024.00
8 July 2003 December 2002, January, February, March 2003 $ 146,793.00

74. On receipt of these penalty notices the respondent did not cause the Company to take any of the steps set out in the notice, that is to cause the Company to comply with s 222AOB.

75. The appellant then commenced recovery proceedings in the District Court of New South Wales and proceeded on an Amended Statement of Liquidated Claim filed 22 July 2005 for a total amount of unpaid directors penalties of $ 146,793.

76. On 6 September 2006 the primary judge entered a verdict for the respondent.

Disposition

Background

77. Interpretation of s 1318 of the Act must start with its legislative history described usefully by Austin J in
Australian Securities and Investments Commission v Vines (2006) 24 ACLC 165 ; (2006) 56 ACSR 528 at [ 10 ] and following.

78. What is salient is that in the United Kingdom, dating back from s 32 of the English Companies Act 1907, later adopted in the Australian States, there is a consistent theme that the court should have power to relieve, in order that penal provisions or quasi penal provisions should not operate unfairly or harshly. Relief so extended does not strictly speaking exonerate the person in question by

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removing the breach; rather it operates as a dispensing power excusing the contravenor. " Exonerate " used in this s 1318 context has therefore the sense of taking a burden from a person who has committed a breach. It does not mean that the breach is deemed never to have occurred. Rather the person concerned seeks to satisfy the court that " having regard to all the circumstances of the case " he or she " ought fairly to be excused " so as to receive dispensation.

79. The English Companies Act of 1907 was replaced by the substantially revised UK Companies Act 1929 following recommendations of the Company Law Amendment Committee chaired by Mr Wilfred Greene KC. The revised dispensing provisions, though similar, were extended in three material respects:

  • (i) the words " default " and " breach of duty " were added to " negligence " and " breach of trust " ;
  • (ii) the section which had been originally applicable only to directors, was extended to officers, managers and auditors; and
  • (iii) the reference to " all the circumstances of the case " was expressed to include circumstances connected with the person ' s appointment.

80. With those extensions a similar provision was adopted by the Australian States, remaining in that form until 1982. It appeared as s 365 of the Uniform Companies Act of 1961. In 1982, that legislation was replaced by the national co-operative companies and securities scheme. It remained State legislation though adopting a Commonwealth enactment. By that legislation, s 365 was replaced by s 535.

81. The only material changes brought about by s 535 in 1982 were:

  • (a) to extend the dispensing power to employees though still limited to civil proceedings, and
  • (b) to remove the requirement to act " reasonably " .

82. As Austin J explains in Vines , there have been no relevant changes of substance to that provision since 1982.

83. The current dispensing power is contained in s 1318. It is located since 2001 within Pt 9.5 of the Corporations Act with a number of other powers of courts, under what is now Commonwealth legislation passed pursuant to a referral of power by the States. As the appellant submitted, in order for s 1318 to apply to a director a number of conditions must be satisfied:

  • (a) civil proceedings must have been commenced against a person who is a director " for negligence, default, breach of trust, or breach of duty " such being " in the capacity of such a person " , but note s 1318(2) where anticipated proceedings suffice;
  • (b) it must appear to the Court that the person is or may be liable in respect of the negligence, default, breach of trust or breach of duty;
  • (c) the person has acted honestly; and
  • (d) having regard to all the circumstances of the case, including those connected to the appointment, the person ought fairly be excused for the negligence, default or breach of trust or duty.

84. Significantly as I explain later, where a person to whom s 1318 applies has reason to apprehend that any such claim even " might be made " , that person may apply under s 1318(2) for anticipatory relief. The court has the same power to relieve as if an actual claim had been brought.

85. From 2001 both Part VI of the ITAA and the current corporations legislation were the product of the one legislature, namely the Commonwealth. As Gaudron J said in
Saraswati v R (1991) 172 CLR 1 at 17, cited with approval in
Ferdinands v Commissioner for Public Employment (2006) 225 CLR 130 at [ 48 ] by Gummow and Hayne JJ, the general presumption is that there is no contradiction between two enactments of the one legislature. Gaudron J put the rule of construction this way:

" It is a basic rule of construction that, in the absence of express words, an earlier statutory provision is not repealed, altered or derogated from by a later provision unless an intention to that effect is necessarily to be implied. There must be very strong grounds to support that implication, for there is a general presumption that the legislature intended that both provisions should operate and that, to the extent that they would

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otherwise overlap, one should be read as subject to the other. "

86. That presumption is rebuttable in construing the two sets of provisions. The joint judgment of Gummow and Hayne JJ in Ferdinands (supra) emphasises, " no conclusion can be reached about whether a later statutory provision contradicts an earlier without first construing both provisions " (at [ 47 ] ). Ferdinands recognised that there may be revealed either an explicit or implicit contradiction whereby the later Act may implicitly repeal or modify the earlier. The question is whether that was so here, or whether, as the respondent contends, the general presumption applies.

87. It was the Insolvency (Tax Priorities) Legislation Amendment Act 1993 (Cth) ( " the Tax Priorities Act " ) which introduced the amendments to the ITAA which gave rise to Division 9. Division 9 replaced s 221P of the ITAA. Under the replaced s 221P(2) and (3) priority was given to group tax withheld over all but the costs and expenses of winding up where these, under companies legislation (originally s 292(1)(a) of Companies Act 1961 and now s 556(1)(a) of the Corporations Act ) were payable in priority to all other debts in winding up; see McPherson, " The Law of Company Liquidation " (The Law Book Company, 1999) 4th ed at 604-5. From 1993, the Commissioner lost priority for tax on winding up but gained the benefit of the accelerated collection scheme of Division 9. That legislative history is described more fully by Spigelman CJ in
Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113 at 118-122. That amending legislation was accompanied by amendments made to the then Corporations Law by the Corporate Law Reform Act 1992 (Cth) with effect from 23 June 1993 though these were in relation to insolvent trading.

88. By application of that legislation under the co-operative scheme, new provisions were added. These dealt, inter alia , with the director ' s duty to prevent insolvent trading by a company. Specific provision was made to accommodate the special regime applicable to the Commissioner of Taxation, as introduced by the Tax Priorities Act . It is to be found in s 588FGA of the Corporations Law as from 1 July 1993. Section 588FGA was intended to operate alongside the provisions dealing with the director ' s duty to prevent insolvent trading contained in the new ss 588G, 588H, 588M, 588R, 588T, 588W and 588X within new Pt 5.7B of the Corporations Law . These provisions took effect from 23 June 1993.

89. These reforms were based on recommendations by the Australian Law Reform Commission in the General Insolvency Inquiry, known as the Harmer Report after its author. The Harmer Report recommended abolition of the priorities accorded to the Commissioner of Taxation over all other unsecured creditors with respect to certain amounts deducted or withheld (Harmer Report [ 733 ] - [ 741 ] ).

90. The essential character of the new Division 9 of the ITAA was thus accommodated to the Corporations Law regime though not embodied in the Corporations Act itself. Its connection with corporate matters is to be found encapsulated in the object of s 222ANA earlier quoted and in the outline of Divisions 8 and 9 found in that introductory section.

" 222ANA Object and outline

  • (1) The purpose of this Division is to ensure that a company either meets its obligations under Division 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.

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    (4) Part 4-15 in Schedule 1 to the Taxation Administration Act 1953 provides for the recovery of amounts payable under this Division. "

Civil proceedings " for " default or breach?

91. Against that background I turn now to the first contention of the appellant. It is that though the proceedings against Mr Dick under the ITAA could be characterised as civil proceedings, they were essentially proceedings, not " for " a default or breach of duty as required by s 1318 but to enforce a statutorily imposed liability. That penalty arises automatically under the terms of Division 9 as a consequence of default. No proceedings are required to establish that a default occurred, as distinct from proceedings to recover a penalty in consequence. That default is the directors ' failing to cause the company to do one of the four things specified in s 222AOB ITAA. The Commissioner must then give the requisite 14 days notice to exact a penalty against any individual director. If that state of affairs still continues at the expiration of the notice (s 222AOE) liability to penalty is imposed on each director without any legal proceeding. Civil proceedings are required to enforce that statutory penalty. There are specified defences, none equivalent to s 1318, which that individual director may invoke under s 222AOJ, as I explain below

92. Proceedings for enforcement and recovery are brought by the Commissioner against the respondent as an individual director. They are described as " proceedings to recover from a person a penalty payable under this Subdivision " . Section 222AOJ sets out the only defences that can then be raised under the ITAA in these terms:

" 222AOJ Defences

  • (1) This section has effect for the purposes of:
    • (a) proceedings to recover from a person a penalty payable under this Subdivision; or
    • (b) proceedings under section 222AOI against a person of the kind referred to in paragraph 222AOI(d).
  • (2) It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at any time when:
    • (a) the person was a director; and
    • (b) the directors were under the obligation to comply with subsection 222AOB(1) or 222AOBAA(1).
  • (3) It is also a defence if it is proved that:
    • (a) the person took all reasonable steps to ensure that the directors complied with subsection 222AOB(1), 222AOBAA(1) or 222AOBA(1) (whichever is relevant); or
    • (b) there were no such steps that the person could have taken.
  • (4) In subsection (3):

    reasonable means reasonable having regard to:

    • (a) when, and for how long, the person was a director and took part in the management of the company; and
    • (b) all other relevant circumstances. "

93. I would conclude that such enforcement proceedings under Division 9 ITAA are not precluded from being " for " a breach or default, as required by s 1318(1), notwithstanding that they are not needed to establish the default occurred. I consider " for " is used in the broader sense as equivalent to " in respect of " , taking its meaning from its statutory context. Thus in the parallel subsection (2) of s 1318 the phrase " in respect of " is used equivalently to " for " in the preceding subsection (1). That interchangeable use of " for " and " in respect of " make it plausible to attribute the wider denotation of the phrase " in respect of " to both s 1318(1) and (2). In other contexts, it has been said that the phrase " in respect of " has a wider ambit than the term " for " (
Unsworth v Commissioner for Railways (1958) 101 CLR 73 at 87 per Fullagar J). But in statutory contexts like this the two expressions have been held to be essentially co-extensive (
State Government Insurance Office (Qld) v Crittenden (1966) 117 CLR 412 at 414-417 per Taylor J).

Conclusion

94. I do not consider that use of the word " for " in s 1318, before the expression " civil proceedings " , by that fact alone renders s 1318 incapable of application to default by a director

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under Division 9 of the ITAA. That leaves open the possibility that there may be other reasons for that result.

Do the Penalty Provisions fall outside s 1318 because there is a requirement that only defaults within the context of the Corporations Act are within its ambit and these provisions were not?

95. The next submission of the appellant is that the default or breach of duty, even if so characterised, was not within the ambit of s 1318, being outside the context of the Corporations Act 2001 or otherwise lacking the requisite corporate character. The appellant relies on UK and Australian authority as limiting the application of s 1318 and equivalent provisions to failure in the discharge of obligations having such a corporate character. I appreciate there is a degree of artificiality in separating this issue from the last one, namely whether the tax provisions in question constitute a separate regime, of a character in contradiction, express or implied, to the dispensing power of s 1318. Nonetheless it is useful to start with the threshold question of whether s 1318 is precluded from applying at all, given that the statutory provisions arise under legislation outside the Corporations Act . If answered in the affirmative, it operates as a threshold barrier to any application of s 1318 whether or not the tax provisions operate as a self-contained regime. The Chief Justice, whose judgment I have had the advantage of reading, concludes that threshold question in favour of the appellant, basing that conclusion primarily on the legislative history of s 1318 and its UK progenitors. In what follows, I explain my own reasons for answering the threshold question differently, though I acknowledge the cogency of the reasons marshalled by the Chief Justice to the contrary.

96. Section 588G and cognate provisions read with s 588FGA are incorporated now in the Corporations Act . They deal, inter alia , with the director ' s obligation to indemnify the Commissioner of Taxation in relation to what is described as " a voidable transaction " . The appellant submitted that even location of such a provision in the Corporations Act would not mean that failure in that obligation was amenable to the dispensing power in s 1318, if it lacked the necessary corporate character. Essentially the appellant ' s submission is that proceedings to recover a penalty under Divisions 8 and 9 of the ITAA lack the requisite corporate character required of a default or breach for s 1318 to be capable of application in that context.

97. One difficulty with this submission is that it begs the question as to what degree of connection with corporate matters is required for a default or breach to come within the ambit of s 1318. What is the discrimen? One may readily conclude that proceedings taken, for example, under occupational health and safety legislation against directors of a corporation would fall outside the dispensing scope of s 1318 of the Corporations Act . However, the connection between the subject matter of corporations law and the penalty recovery proceedings under the ITAA here is a closer one, as evinced by s 222ANA of Division 9 ITAA quoted above.

98. The connection starts with the removal of the Commissioner ' s priority for tax. Substituted were the two sets of provisions, one contained in Pt 5.7B of the Corporations Law and the other Divisions 8 and 9 contained in the ITAA.

99. Speaking generally, the first set of provisions require directors to indemnify the Commissioner, subject to certain defences, if payments to the Commissioner are set aside as voidable transactions having been made in the course of " insolvent trading " .

100. A related though distinct set of provisions was introduced by s 222ANA of the ITAA. These concern tax deducted from employees and the consequent duty imposed on directors to cause the corporation to take certain steps. Thus directors of a company failing to cause the company to remit PAYG moneys to the Commissioner or failing to cause the company to make a payment agreement to pay specified amounts, must cause the company to appoint an administrator or begin to be wound up (s 222AOB). These are all matters which arise in a corporations law context. Indeed they reach into a core area concerned with corporations, namely their liquidation or administration. Though these matters are directed to discharging fiscal obligations they:

  • (a) are imposed on directors as such;

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    (b) replace the Tax Commissioner ' s historical priority for tax; and
  • (c) substitute a scheme for accelerated collection of PAYG amounts, which, though it is found in income tax legislation, has a direct connection with the liquidation or administration of companies.

These are powerful considerations for attributing a sufficient connection with the subject matter of corporations and directors ' duties in a corporations law context. This would rebut any argument that s 1318 were incapable of application by reason only of Divisions 8 and 9 having insufficient connection with corporations and corporate matters.

101. That said, as a matter of broad statutory interpretation, it must be recognised that earlier decisions on s 1318 and its UK counterpart gave s 1318 a narrow scope. Thus the meaning of " default " or " breach of duty " was limited to a failure to conduct oneself properly as a director in discharge of obligations pursuant to the corporations law. In
Customs and Excise Commissioners v Hedon Alpha Ltd [ 1981 ] 1 QB 818 the issue concerned whether a director could invoke the dispensing power for failure in relation to his company paying betting duty under the Betting and Gaming Duties Act 1972 (UK). While the case is authority for the unavailability of the dispensing power in relation to actions brought by third parties, that is no longer to be regarded as a limitation in relation to s 1318. What is significant about the decision is that it affirmed that the only breaches of duty within the dispensing power were breaches of a director ' s personal duties in his capacity as a director; Stephenson LJ at 823-4. Similarly Griffiths LJ at 827-8 limited the dispensing power to the discharge of a director ' s obligations pursuant to the Companies Act .

102. Subsequently in Australia in
Commonwealth Bank of Australia v Friedrich & Ors (1991) 9 ACLC 946 ; (1991) 5 ACSR 115 Tadgell J declined to apply s 1318 to the statutory duty on a director to prevent insolvent trading by that director ' s company, contained in the predecessor of s 588G. This was on the basis that proceedings for insolvent trading were not proceedings for " negligence, default, breach of duty or breach of trust " as required by s 1318. That interpretation was followed in
Standard Chartered Bank of Australia Ltd v Antico (1995) 13 ACLC 1,381 ; (1995) 38 NSWLR 290 and
Southern Star Group Pty Ltd v Byron (1995) 13 ACLC 1,622 .

103. In Antico Hodgson J (as he then was) was not satisfied that Tadgell J was wrong in his view that s 556 simply imposed a liability for debt on directors and participants in management in certain circumstances spelt out in s 556(1) and which did not involve default or breach of duty. Nor, Hodgson J concluded, was Tadgell J incorrect to regard s 556(2) in its then form as simply specifying circumstances in which a defendant can escape liability, again without reference to questions of default or breach of duty.

104. More recently, it has been held that s 1318 does apply to s 588G in imposing a duty on a director to prevent insolvent trading by that director ' s company;
Kenna & Brown Pty Ltd (in liq) v Kenna (1999) 17 ACLC 1,183 ; (1999) 32 ACSR 430 . Bergin J drew a distinction between the new regime applicable to debts incurred after 23 June 1993 whereby, under s 588G, the offence was for a director to " fail to prevent " a company from incurring a debt in the prescribed circumstances. In contrast, Tadgell J had been dealing with a claim under the predecessor s 556 of the Companies Code . Tadgell J was not able to find liability under its then wording arising either from the doing of acts or (at the least) from failing to do something specifically required by the law. As Tadgell J said at [ 1007 ] :

" … it remains necessary to discern the imposition by s 556(1) of a liability to the plaintiff for a default or breach of duty by the defendant. I have difficulty in seeing that s 556 imposes by its terms a liability for an act or omission in contravention of the Code or for the breach of any duty imposed by the Code or otherwise.

… The liability under s 556(1) does not arise on account of .. the performance of some act forbidden, or the omission of some act required, by s 556(1) or indeed any other provision of the Code. The only prerequisite to the defendant ' s liability under s 556(1) over which he has any necessary control is simply that he was a director or took part in the management of the company. This

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cannot by itself involved him in any default or breach of duty. "

105. I do not consider that the UK authority of Hedon Alpha and the Australian authorities following it ( Antico and Friedrich (supra)), nor the legislative history, preclude s 1318 applying to defaults or breaches of the kind here in question, namely arising under Divisions 8 and 9 of the ITAA. This kind of default and the sanctions attaching to it sufficiently partake of a corporate character. This is by imposing personal duties on directors of a company culminating in each director, qua director, having a personal obligation on pain of penalty to put the company into administration or liquidation if the directors have not caused that company to meet its tax obligations under PAYG.

106. The Commissioner ' s priority for employee group tax, later to be replaced by Divisions 8 and 9, was conferred by ITAA s 221P. Section 221P, and its predecessors going back to 1944, were always to be found in the Income Tax Act , not the corporations legislation. However, s 221P nonetheless had a close interaction with corporations legislation, as illustrated by s 221P(3) of the pre-1993 regime. The latter permitted prior payment of the costs and expenses of winding up, but only where these were, as corporations legislation provided, payable in priority to all other debts in a winding up.

107. Turning to the legislative history of s 1318, it does not foreclose the possibility that breaches or defaults under other Commonwealth legislation imposing duties on directors (or officers) in that capacity may be within the scope of s 1318 ' s dispensation, but depending on the terms of that legislation and whether compatible with such a result. UK law today rejects the traditional dichotomy between matters corporate concerned exclusively with profit, as compared to matters social or community that may affect that profit viewed in the longer term. This is reflected in the Companies Act 2006 (UK) s 172(1). In the United Kingdom directors ' duties are for the first time enacted in terms requiring directors to have regard, inter alia , to " the interests of the company ' s employees " and to " the impact of the company ' s operations on the community and the environment " ; see the valuable article " Companies Act 2006 (UK): A new approach to directors ' duties " by Rt Hon Lady Justice Arden DBE, (2007) 81 ALJ 162, writing extra-judicially.

108. Australia, it is true has not travelled that route. Nonetheless the notion of the company as an " ongoing commercial entity " engaged longer-term with its employees and the community and concerned with shareholders not only present but future, has long been an inherent part of our company law. That allows directors likewise to take a longer-term view of profit. They are justified in doing so in order to preserve the stability of the profit-making enterprise. This in turn requires that directors recognise and respect wider statutory obligations particularly where their disregard may impact adversely on the corporation including in that sense the longer-term. The corporate obligation here, which arises in the wider community context is not only to pay its taxes to which it is properly liable but also to pass on the PAYG taxes required to be collected from employees. There is potential adverse impact on the corporation in directors ' failure to cause the corporation to do so, because directors may then be required to wind up the company or place it in administration, unless the other permitted steps are taken.

109. Divisions 8 and 9 thus reflect the wider statutory obligation to collect and account for corporate employee taxes, making this a core responsibility of the corporate board ' s oversight. This is by imposing stringent obligations on directors qua directors to cause their company to pass on employees ' PAYG tax on pain of personal penalty. In so doing, tax legislation reaches into core corporate areas of liquidation and the related status of administration. Thus neglect of that statutory obligation can put the corporation at risk of its demise. These PAYG obligations of directors are no less obligations of a director qua director in both an individual and collective board sense and no less capable of giving rise to default or breach of duty than other corporate statutory obligations. They arise directly under the ITAA and indirectly in avoiding endangering the company by their breach. A breach of the tax obligation is capable of giving rise to a parallel breach of the core duty of care and diligence if directors expose their company carelessly to

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liquidation or administration by reason of their permitting neglect of the company ' s PAYG obligations.

110. What this illustrates is that there is a danger of error in identifying duties centrally concerned with corporations, based on the narrow view of whether or not they are imposed by the corporations statute itself. The expansive constitutional interpretation of the Commonwealth ' s corporations power to support the validity of legislation directed at constitutional corporations favours a wider view than this. That history shows that matters centrally concerned with corporations will often be found in allied legislation. That comports with the trend begun in Australia and now more recently adopted in the United Kingdom not only to codify directors ' duties comprehensively in corporations statutes, but to create further potentially connected statutory duties on directors in allied legislation. While not all of these examples sufficiently partake of a corporate character such as occupational health and safety, some are clearly capable of doing so. Accordingly to base the test for application of s 1318 on whether the statutory obligation is in the Corporations Act itself is at odds with that contemporary reality.

Summing up

111. As a threshold matter, it is not a distortion of language to construe " default " or " breach of duty " as capable in a dispensing power of accommodating the statutory obligation in relation to PAYG. This is always provided there is no contradiction, express or implied, between two statutory regimes, there being otherwise a rebuttable presumption of mutual accommodation between legislation emanating from the same legislature. Thus the PAYG obligation is imposed on a director qua director and reaches into the core corporate law concerns of liquidation and its related status of administration. Moreover, such statutory provisions as Divisions 8 and 9 could have been found, or at the least cross-referenced, within traditional corporations legislation, as I have illustrated with the previous s 221P(3). Such a nexus between corporations law and tax is much closer than for example any connection with occupational health and safety. The latter emanates from another legislature, namely the State, and unlike Divisions 8 and 9 it applies to any employer, incorporated or not. However as I conclude in dealing with the remaining ground of challenge, there is in my judgment such contrariety between the two regimes, that the general presumption of mutual accommodation is rebutted in this case. I agree with the observations of Basten JA in that context.

Divisions 8 and 9 of the ITAA - to be construed as an exhaustive regime?

112. The appellant ' s submissions can be reduced to two propositions:

  • (a) that Divisions 8 and 9 of the ITAA, properly construed, constitute an exhaustive legislative regime or code covering the field leaving no scope within the context of such a scheme or code to invoke s 1318 as a dispensing provision found outside the ITAA in the Corporations Act 2001; and
  • (b) there is conflict or contradiction between the provisions of an Act (Divisions 8 and 9 of the ITAA) which in specific terms imposes liability on a director and a general provision of a later Act (s 1318 of the Corporations Act 2001) which, if applicable, would allow relief from the liability so imposed.

The appellant invokes the maxim generalia specialibus non derogant .

113. It is to beg the question simply to assume:

  • (a) that Divisions 8 and 9 of the ITAA constitute a code and then;
  • (b) to derive from that characterisation and the maxim earlier quoted the conclusion that as a code it is necessarily exhaustive.

114. The starting point is rather to engage in a process of statutory construction in order to ascertain:

  • (a) whether Divisions 8 and 9 of the ITAA constitute a code, and if so;
  • (b) whether that code accommodates or excludes the application of the dispensing power in s 1318 of the Corporations Act .

115. In Ferdinands , there were, as here, two enactments of the same legislature. That gave rise to a general presumption to which I have earlier referred:

" … in the absence of express words, an earlier statutory provision is not repealed, altered or derogated from by a later

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provision unless an intention to that effect is necessarily to be implied. There must be very strong grounds to support that implication, for there is a general presumption that the legislature intended that both provisions should operate and that, to the extent that they would otherwise overlap, one should be read as subject to the other. "

per Gaudron J in
Saraswati v the Queen at 17.

116. That presumption of mutual accommodation is however rebuttable if the process of statutory construction reveals express or implied contradiction between the two enactments.

117. Thus Gummow and Hayne JJ in Ferdinands start with the proposition that:

" no conclusion can be reached about whether a later statutory provision contradicts an earlier without first construing both provisions. If, upon their true construction, there is an ' explicit or implicit contradiction ' between the two, the later Act impliedly repeals the earlier " ; at [ 47 ] .

118. Gleeson CJ in Ferdinands posed the enquiry similarly. It was whether there was such contrariety in the two legislative schemes that, by necessary implication, the later excluded the operation of the earlier, characterising the enquiry as one of statutory interpretation. There was, as here, no express statement that the two statutory enactments should both apply or that the second statutory enactment should apply to the exclusion of the first. That process of statutory construction in Ferdinands revealed implicit contradiction between the two sets of provisions so rebutting the general presumption of mutual accommodation.

119. Section 1318 of the Corporations Act 2001 was enacted later in time than Division 8 and 9 of the ITAA. The fact that similar predecessor provisions of s 1318 predated Divisions 8 and 9 may weaken the general presumption insofar as it derives from that later order of events. I shall proceed on that basis nonetheless. I conclude that even if the presumption prima facie applied, it is rebutted.

120. As in Ferdinands , I consider that the difficulty in reconciling the two sets of legislative provisions is determinative of the construction question. Their contrariety displaces that the general presumption of mutual accommodation. This construction is reinforced by what I shall call for convenience " the Anthony Hordern principle " . It was enunciated by Gavan Duffy CJ and Dixon J in these terms in
Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at 7:

" when the Legislature explicitly gives a power by a particular provision which prescribes the mode in which it should be exercised and the conditions and restrictions which must be observed, it excludes the operation of general expressions in the same instrument which might otherwise have been relied upon for the same power. "

121. While the Anthony Hordern principle refers to the two sets of provisions as being " in the same instrument " , I draw on the principle by analogy to determine whether two enactments of the same legislature are capable of mutual accommodation, or whether the general presumption to that effect is rebutted.

122. The Anthony Hordern principle has been frequently applied in subsequent cases; for example in
John v Federal Commissioner of Taxation 89 ATC 4101 ; (1989) 166 CLR 417 at 434;
Saraswati v R at 23-24;
Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) CLC ¶ 40-553 ; (1979) 141 CLR 672 at 678;
David Grant & Co Pty Ltd (Receiver appointed) v Westpac Banking Corporation (1995) 13 ACLC 1,572 ; (1995) 184 CLR 265 at 276;
Australian Capital Television Pty Ltd v The Commonwealth (1992) 177 CLR 106 at 213 and
Switz Pty Limited v Glowbind Pty Ltd (2000) 18 ACLC 343 ; (2000) 48 NSWLR 661 at 677. It is reflected more generally in the maxim generalia specialibus non derogant .

123. Here the particular provisions of Divisions 8 and 9 of the ITAA:

  • (a) give an express power to the Commissioner to impose a penalty on a director;
  • (b) prescribe the mode in which that power should be exercised; and
  • (c) prescribe the conditions and restrictions which must be observed.

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By so doing, this necessarily excludes the operation of general expressions in the Corporations Act . This is reinforced by the difficulties in their reconciliation, so giving rise to an implied contradiction between the two sets of provisions. (I use the word " set " at this point to avoid begging the question of their being an exhaustive code.)

124. Difficulties in reconciling these two sets of legislative provisions start with the fact that different considerations inform the exercise of the dispensing or relief power in s 1318 as compared to the defences under s 222AOJ of the ITAA.

125. Under s 1318, relief is granted not by way of a defence but by way of a favourable exercise of the court ' s discretion. That dispensation can only be invoked where the director concerned has acted honestly and where, having regard to all the circumstances of the case, that director ought fairly to be excused. This is a discretion much more at large than the very specific defences circumscribed by s 222AOJ. The effectiveness of those penalty provisions under the ITAA would be entirely subverted if the person concerned, though unable to prove that he or she " took all reasonable steps to ensure that the directors complied with the relevant statutory provisions " , could yet seek and obtain relief under s 1318.

126. There are other difficulties in reconciliation. Section 1318(2), were it available to a director subject to the tax regime, would enable that director to apply to the court for relief in advance of any proceedings for enforcement of that penalty. There is no equivalent in Divisions 8 and 9. Moreover s 1318(1) itself operates not only where liability has been found, but where, unlike the tax regime, the person merely " may be liable " . Again there is no equivalent in Divisions 8 and 9.

127. One can thus see how such a capacity to invoke s 1318(2) would subvert the intended stringency of Divisions 8 and 9 of the ITAA. That stringency is to ensure that the Commissioner, having lost his former statutory priority for tax, can still take effective action to make sure that PAYG deductions from the company ' s employees salary and wages are remitted.

128. Invoking the Anthony Hordern principle, there is no doubt that the statutory defences which have been provided in s 222AOJ are specific in the criteria which must be met. They depend essentially upon illness, good reason for not taking part in the management of the company, or the reasonableness and extent of steps taken to ensure the directors complied with the earlier obligations under s 222AOB. The statutory defences under s 222AOJ are moreover confined to a particular time period. That time period is from the due date of the deduction until the expiry of 14 days after the director penalty notice is received. A director must make out the defence in respect of this period (i.e. while under an obligation to comply with s 222AOB) or be irrevocably fixed with a penalty. Section 1318 has no such equivalent.

129. The statutory defences in s 222AOJ thus differ substantially from the generality of s 1318. There all that is required is, that it " appears to the court … that the person has acted honestly and that having regard to all the circumstances of the case … the person ought fairly to be excused … on such terms as the court thinks fit ' . If the legislature had intended that a general provision such as s 1318 could overtake the need to make out the specific statutory defences within Division 9 it could have readily so provided.

130. The maxim generalia specialibus non derogant thus operates in a context where, if the general provision (s 1318), were to apply, it would neutralize the specific provisions of Divisions 8 and 9 of the ITAA. Compare O ' Connor J in
Goodwin v Phillips (1908) 7 CLR 1 at 14:

" Where there is a general provision which, if applied in its entirety, would neutralize a special provision dealing with the same subject matter, the special provision must be read as a proviso to the general provision, and the general provision, in so far as it is inconsistent with the special provision, must be deemed not to apply. "

131. The two sets of provisions are thus clearly repugnant to one another in the sense used by Deane J in
Refrigerated Express Lines (A/Asia) Pty Ltd v Australian Meat and Live-Stock Corporation (No. 2) (1980) 29 ALR 333 at 347:

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" As a matter of general construction, where there is repugnancy between the general provision of a statute and provisions dealing with a particular subject matter, the latter must prevail and, to the extent of any such repugnancy, the general provisions will be inapplicable to the subject matter of the special provisions. ' The rule is, that wherever there is a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be taken to be operative … ' (per
Romilly MR: Pretty v Solly (1859) 26 Beav 606 at 610; 54 ER 1032 at 1034). Repugnancy can be present in cases where there is no direct contradiction between the relevant legislative provisions. It is present where it appears, as a matter of construction, that special provisions were intended exhaustively to govern their particular subject matter and where general provisions, if held to be applicable to the particular subject matter, would constitute a departure from that intention by encroaching on that subject matter . " [ emphasis added ]

Conclusion

132. I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s 1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s 1318 to apply. They each operate as parallel universes with no intersection between them. Any general presumption to the contrary from the fact that the two sets of legislation emanate from the same Commonwealth legislature is displaced by the implied contradiction between the two sets of provisions.

The discretion to allow relief under s 1318

133. I have concluded that the court ' s power to grant relief under s 1318 of the Act is not capable of application to the respondent in the circumstances of the application of the penalty regime under the ITAA. It is therefore not necessary that I deal with the further question of the discretion exercised in this particular case, were it capable of being exercised at all.

134. Suffice it to say that while one may have sympathy for the position the respondent found himself in, this was a case where he was aware at least from August 2002 that the Company was in serious financial difficulty and not paying its debts as they fell due. The respondent was also aware from that same date that the Company had not been remitting deductions of PAYG which it had made from payments of salary and wages. Yet the respondent did not himself take any steps to address the situation or cause the Company to comply with s 222AOB. Further, the respondent was on notice from the receipt of penalty notices in November 2002 and January 2003 that the Company had not been remitting its PAYG but still did not take any appropriate steps to cause the Company to comply with s 222AOB(1).

135. In those circumstances there would be formidable difficulties in the way of any favourable exercise of discretion even were s 1318 capable of application.

Overall conclusion

136. I consider that the appeal should be allowed. In relation to costs, the cross-appeal on costs for which leave to appeal is required, does not relevantly arise. While the Commissioner has agreed to pay the respondent ' s costs of appeal in any event, the Commissioner as the successful appellant is entitled to an order that the respondent pay the costs below.

137. Accordingly I propose orders as follows:

  • (1) Appeal allowed.
  • (2) The order of Johnston DCJ on 6 September 2006 entering verdict for the defendant be set aside.
  • (3) Judgment be entered for the appellant in the sum of $ 141,259.19.
  • (4) The respondent to pay the costs below.
  • (5) There be no order for costs in relation to the appeal.
  • (6) Leave to cross-appeal disallowed and the claimant to pay the opponent ' s costs in the cross-appeal.


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