Mayne Nickless Limited v. Federal Commissioner of Taxation.

Ormiston J

Supreme Court of Victoria

Judgment date: Judgment handed down 29 June 1984.

Ormiston J.

The appellant, Mayne Nickless Limited (``Mayne Nickless''), is a public company whose activities include carriage for reward, freight forwarding, security services, civil engineering and general contracting services. In the year ended 30 June 1979 in the course of its carrying business, and in particular that of its armoured cars division, Mayne Nickless incurred fines or penalties, or paid fines or penalties on behalf of its employees and third party contractors, amounting in all to some $37,201. In its taxation return for that year the fines and penalties paid by the company were claimed to be losses and outgoings incurred in the carrying on of its business and consequently allowable deductions in the calculation of its taxable income. In the assessment dated 4 March 1980 issued by the respondent

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Commissioner of Taxation (``the Commissioner''), the claim to deduct the fines and penalties was rejected, together with a number of other items not presently relevant. On 15 April 1980 Mayne Nickless objected to the assessment on a number of grounds and on 24 October 1980 the Deputy Commissioner of Taxation for Victoria allowed that objection in part but maintained his refusal to allow the claim for the fines and penalties. On 21 January 1981 Mayne Nickless requested the Commissioner to treat its objection as an appeal and to forward it to this Court.

The questions raised for my decision can be simply stated, but not so simply answered. The two issues are whether the payments made by Mayne Nickless in respect of the fines and penalties were losses or outgoings incurred in gaining or producing its assessable income or necessarily incurred in carrying on its business for the purpose of gaining or producing its assessable income and, secondly, if the payment of the fines and penalties can be characterised as losses or outgoings within the meaning of sec. 51 of the Income Tax Assessment Act 1936 (``the Act''), whether public policy would deny the taxpayer the right to deduct the payment of those fines and penalties in calculating its taxable income.

I propose to give some description of the activities of Mayne Nickless which led to the payment of the fines and penalties in question, but I think it is unnecessary to describe each and every offence for which a fine or penalty was imposed, since they occurred in each of the States and Territories of the Commonwealth except Tasmania. Counsel for Mayne Nickless and the Commissioner both agreed that an examination of the offences which took place in Victoria and New South Wales would give a sufficient idea of the nature and variety of offences for which fines and penalties were paid.

As far as I could discover from the voluminous photocopied materials, the fines and penalties in question varied from as low as $4 to as high as $800 and were paid in respect of a total of 693 offences. Four hundred and ninety-nine of the fines and penalties were for parking infringements, although the total amount paid in respect of those fines and penalties was only $6,075. In frequency the next highest category of fines and penalties was in respect of 117 overloading offences for which fines and penalties totalling $26,590 were paid. All of the relevant fines and penalties were for motoring offences including, in addition to the two broad categories already mentioned, speeding, defective tyres, faulty vehicles, illegible number plates, absence of permits, failure to give signals, incorrect lighting and excessive emission of fumes. Some were for general traffic offences, others related specifically to failure to comply with regulations applying to commercial vehicles.

In a majority of cases the fines or penalties were imposed on Mayne Nickless itself, especially in the case of the parking offences. However, there was also a large class of fines and penalties imposed on the employees of the company who were driving or in control of the vehicles at the time of the offences, especially in the case of speeding and other driving offences. Where the employee was fined or penalised the company Mayne Nickless paid the fine or penalty on his behalf. This was explained by Mr. Redpath, the chairman of the company, as being designed ``to ensure that its employees continued to be willing to work for the appellant, and so as to maintain staff loyalty and satisfactory industrial relations''. Mr. Jacobs, the company secretary, suggested also that the unions would not allow the employees themselves to pay the fines imposed in these circumstances, at any rate where there was not some blatant breach of the law. So far as I could ascertain the company investigated each case to determine whether it would pay the fines and penalties, but it appeared that in the vast majority of cases the company bore the expense unless it was clear that the employees were ``guilty of reckless traffic offences'', in which case the company had no problem with the union in requiring the employees to pay the penalties themselves.

In addition an unspecified number of traffic offences were committed by third party contractors engaged by Mayne Nickless in the course of carrying on its carriage business and the fines and penalties imposed were said to have been paid to ensure continuity of dealing with those contractors.

Some further description of the fines and penalties paid by Mayne Nickless is required because of the manner in which they came to be paid by the company. In the first place, none of the offences for which fines and penalties were paid were indictable offences and so, not

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surprisingly, in all cases where the fines and penalties were imposed by Courts, they were imposed by Magistrates' Courts, Courts of Petty Sessions or Courts of Summary Jurisdiction, depending on the jurisdiction in which the offences were committed. In every case the offence was what is commonly described as a statutory or regulatory offence and the conduct proscribed in each case was proscribed either by statute or regulation under Acts such as the Road Traffic Act 1958 (Vic.), the Motor Car Act 1958 (Vic.), the Motor Traffic Act, 1909 (N.S.W.), the Main Roads Act, 1919 (N.S.W.), the Airports (Surface Traffic) Act 1960 of the Commonwealth.

Furthermore, the majority of fines and penalties paid by Mayne Nickless, in number if not in value, were not imposed by Courts at all but were paid in response to what are commonly called ``on the spot'' tickets or, as they are more correctly called in Victoria, ``parking infringement notices'' and ``traffic infringement notices''. Almost all the fines and penalties for parking offences were paid in this way and a substantial number of fines and penalties for other traffic offences were likewise so paid. Furthermore in the case of parking infringement notices advantage was taken of sections such as sec. 11 of the Road Traffic Act 1958 of Victoria which deems the owner of a vehicle to be guilty of parking offences subject to certain statutory exceptions. Almost without exception the ``owner'' for this purpose in the present case was Mayne Nickless which was in fact the person in whose name the relevant motor vehicle was registered under the appropriate legislation.

Because some argument was addressed to me as to the nature of the penalties imposed in these circumstances I will outline the relevant legislation in Victoria. The Road Traffic Act 1958 (which has since been repealed and largely re-enacted by the Transport Act 1983) provided in Pt. II specified methods of prosecution of ``infringements'' which were defined in sec. 9 to include both ``parking infringements'' and ``traffic infringements''. In that section ``parking infringement'' meant the parking or leaving standing of a vehicle in contravention of any Act rule regulation or by-law including those made under Pt. I of the Road Traffic Act itself. ``Traffic infringement'' meant a variety of offences, other than ``parking infringements'', under Pt. I of the Road Traffic Act and, inter alia, under various provisions of the Motor Car Act 1958 and the regulations made thereunder.

Section 11A of the Road Traffic Act provided an elaborate scheme for service of both parking and traffic infringement notices. A parking infringement notice could be served by a member of the police force or an authorised officer appointed pursuant to sec. 7 of the Act if he had reason to believe that a parking infringement had been committed: see subsec. (1). By subsec. (2) the notice could be served on a number of persons including the driver and the owner and in particular by affixing a notice to the vehicle in the prescribed manner. Every parking infringement notice was required to be in a prescribed form and contained in substance a schedule of the most common parking infringements with the relevant prescribed penalty and a statement to the effect that if the amount specified in the notice was tendered the matter would not be brought before a Court. Notices in the prescribed form, of which numerous examples from different municipalities were tendered in evidence, were invariably directed to ``the Owner'' and specified the date, the time and the number of the vehicle and the place at which the offence was alleged to have been committed. Below this appeared a box-like arrangement with abbreviated particulars of 28 infringements briefly described with a small box opposite each infringement and the prescribed penalty on the right hand side opposite each class of infringement. The notice stated ``that a parking infringement was committed as indicated hereunder by a cross (`X')'' and consequently on each notice a cross was marked opposite the alleged infringement. Thereunder there followed the following advice: ``You may dispose of this matter by either - (a) expiating it by payment of the prescribed penalty, or (b) having it dealt with by a Court.'' The notice proceeded to inform the recipient that if the prescribed penalty was received within 14 days the matter would not be brought to Court but that legal proceedings would be instituted if the penalty was not received within the 14 days and that: ``If you wish to have this matter dealt with in Court, you need take no action on this notice.'' The notice was completed by a signature and some instructions dealing, amongst other things, with the proper method of payment.

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The reason for the somewhat curious instructions on the notice appeared from the latter part of sec. 11A of the Act. The consequence of payment within 14 days was set out in subsec. (7) as follows:

``Subject to sub-section (10) of this section, if before the expiration of the period specified in the infringement notice for the payment of the penalty or, where a prosecution officer so allows, at any time before service of a summons in respect of the infringement, the amount of the penalty so shown is paid at the appropriate place -

  • (a) the offender shall be deemed to have expiated the infringement by payment of the penalty therefor;
  • (b) no further proceedings shall be taken in respect of the infringement; and
  • (c) no conviction for the infringement shall be regarded as having been recorded.''

Subsection (8) stated in substance that every penalty paid pursuant to the section shall be applied ``in the same manner as if the offender had been convicted of the infringement in a Magistrates' Court...''. Finally subsec. (10) provided:

``Where an infringement notice has been served as aforesaid and the amount of the penalty is not paid before the expiration of the period specified in the notice as the time for payment or where, in the case of a traffic infringement notice, the notice has been withdrawn, nothing in this section shall in any way prejudice the institution or prosecution of proceedings for the infringement in question (whether pursuant to Part VII of the Magistrates' (Summary Proceedings) Act 1975 or otherwise) but in any case, where the court or magistrate is satisfied that an infringement notice was served in respect of the infringement and has not been withdrawn, the conviction imposed by the magistrate or court shall be deemed not to be a conviction for any purpose (including, without limiting the generality of the foregoing, the purposes of any enactment imposing or authorising or requiring the imposition of any disqualification or disability or higher penalty on convicted persons or persons convicted on more than one occasion) except in relation to -

  • (i) the making of the conviction itself; and
  • (ii) any subsequent proceedings which may be taken in respect of the conviction itself, including proceedings by way of appeal or order to review.''

(Emphasis added.)

I should mention at this stage that in spite of the very wide language of these subsections demerit points were recorded against the holder of licences to drive motor vehicles for the purposes of the Demerits Register kept pursuant to sec. 27A of the Motor Car Act 1958, notwithstanding that an infringement notice had been served and a conviction thereafter recorded or notwithstanding that an offence had been expiated within the meaning of subsec. (7).

Substantially the same procedure was laid down for the service of traffic infringement notices under subsec. (4A) to (4H) and (5A) of sec. 11A of the Act. There were some insignificant differences in that a traffic infringement notice could not be served on ``the Owner'' and there was a procedure for allowing the withdrawal of such a notice under subsec. (4F). The prescribed form of a traffic infringement notice was somewhat more elaborate to take account of the twenty different offences which could be prosecuted in this way and to enable sufficient details of the offence to appear on the notice and there was, for some reason unknown to me, no reference to the fact of expiation on the prescribed notice.

A similar procedure was laid down for parking and traffic offences in every other State and Territory. In substance the effect of the legislation in those other jurisdictions was that payment avoided prosecution but, taking the New South Wales Motor Traffic Act, 1909 as amended as an example, the payment merely obviated prosecution and was not regarded as an admission of liability. In particular no reference was made to the effect of such a payment in terms of a conviction, although in the absence of a prosecution that would appear an unlikely consequence, nor was there any section such as subsec. (10) of sec. 11A of the Road Traffic Act in Victoria which deemed that a prosecution in the case of non-payment could not lead to conviction.

It may be thought that some detailed description should be given of the specific offences for which the appellant paid fines or

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penalties in respect of over 60 different offences, all of which were summary regulatory traffic offences. I shall give but two examples. The first was one of the most common, the Victorian Regulation prohibiting parking in a ``no standing'' area, being reg. 1101(1)(b) of the Road Traffic Regulations 1973: ``A person shall not... leave a vehicle standing in a no standing area... penalty $50''. No standing areas were defined in reg. 102 and there were certain other exceptions not presently relevant. It should be noted that although a penalty was prescribed under reg. 1101 a different and lower penalty of $15 was prescribed for parking infringements by a combination of subsec. (4) of sec. 11A of the Road Traffic Act and the Regulations made thereunder, being the Road Traffic (Infringements) Regulations 1978. Moreover it should be recalled that under sec. 11 of the Road Traffic Act the owner of a vehicle was deemed to be guilty of the offence subject to certain exceptions which included the case where the vehicle was stolen or illegally taken or used, and in particular by subsec. (3)(a) which read:

``Notwithstanding anything in the foregoing provisions of this section no owner of the vehicle shall by virtue of this section be guilty of an offence if -

  • (i) before or within 14 days after the service of the summons in respect of the parking infringement concerned he supplies in a sworn statement in writing to the informant the name and address of the person who was in charge of the vehicle at the relevant time; or
  • (ii) he has satisfied the court that he did not know and could not with reasonable diligence have ascertained such name and address.''

A typical New South Wales Regulation proscribing overloading was reg. 6(1)(a) of O. 30C of 1974 made under the Local Government Act, 1919 which read:

``A person shall not drive or draw or cause to be driven or drawn on any main road any vehicle -

  • (a) having an axle load for an axle fitted with two single pneumatic tyres exceeding 4.8 tonnes in weight.''

There was a presently irrelevant exception in subreg. 2. Clause 15 of the Ordinance provided that any person guilty of an offence against the Ordinance or contravening any provision of the Ordinance should be liable to a penalty not exceeding $400. Clause 18 of the Ordinance read:

``If any vehicle is driven or drawn on any main road in contravention of or non compliance with the provisions of Clause 6, 7 or 9 of this Ordinance, then, without affecting the liability of any other person therefor, the owner of the vehicle, or, the person having the custody of the vehicle, or in the case of a motor vehicle registered under and in accordance with the regulations made under the Motor Traffic Act 1909, the person in whose name the motor vehicle is registered, unless he proves that such contravention or non compliance occurred without his knowledge and that he could not with reasonable diligence have known of or prevented such contravention or non compliance, is guilty of an offence against this Ordinance.''

These examples are sufficient to show that the majority of the offences in question could be characterised as strict liability offences and that persons not directly contravening the Regulations might in certain circumstances be held liable to a penalty thereunder.

Next some description was given of the circumstances in which the fines and penalties were paid by Mayne Nickless, although again it was and is not possible to describe the circumstances under which each of the 693 offences occurred. What was said on behalf of the appellant was that during the relevant year the company employed 5,000 people on a full time basis and engaged over 3,000 people on a part time or sub-contractor basis. It operated 2,460 motor vehicles of various descriptions which were driven something in excess of 98,400,000 kilometres in the year. As I stated earlier many of the fines were paid because the notice or summons was directed to the owner or to Mayne Nickless itself but in a large number of cases the notice or summons was directed to an employee or sub-contractor, on whose behalf Mayne Nickless paid the penalty or fine. Since the circumstances surrounding the commission of no individual offence were described, some general evidence was given as to the policy and practices of the company. In particular it was stated that employees and sub-contractors were actively encouraged to comply with traffic and

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parking legislation and regulations at all times. It was said that drivers were instructed to comply with the requirements of all relevant Acts and regulations, but that in practice it was considered unavoidable by executives of the relevant divisions that some traffic and parking offences would be committed in the course of carrying on its activities ``in a reasonably businesslike and efficient manner'', bearing in mind the nature and extent of the company's operation. Although this was stated by Mr. Beer the Chief executive of the Armoured Cars Division, he went on apparently to contradict that statement in a later part of his affidavit in which he said that where he considered it essential, he instructed supervisors of drivers that in some cases ``it would be necessary for the safety and protection of the public and the safety of drivers'' for the company's vehicles to infringe certain parking regulations. He gave as an example, where collections or deliveries of money were being made to banks and other premises, that drivers were instructed to seek to minimise any risk to the safety of the public and the driver resulting from armed hold-ups by parking as close as possible to the entrance notwithstanding the fact that the vehicle might be in a no standing area.

In each case, as previously pointed out, the company considered whether it would pay the fine or not and, if it thought that the offence was committed recklessly or in circumstances in which it felt it was not responsible, then it would either contest the matter or allow the employee or sub-contractor to pay the fine or penalty. In substance it was said that the company would generally pay penalties imposed on employees or contractors in circumstances where the manager of the relevant depot was satisfied that the offence arose out of activities which were carried out in the interests of the company or resulted from actions of the company. Although it was of doubtful relevance the company chairman stated that the board of directors and the management of the company considered that the payments made of the fines and penalties were a regular part of its business outgoings and were ``incurred in its business operations and commercial activities''. Objection was properly made to the implicit conclusions contained in that statement. Likewise evidence was adduced from a chartered accountant who audited the company's accounts in which he stated that in accordance with accepted accounting principles and practice fines totalling $37,201 were regarded as ``valid operating costs'' and that the profits of the business could only properly be ascertained by treating those payments ``as expenses to be charged against revenue''. This evidence was also objected to on behalf of the Commissioner as irrelevant, and I consider it of marginal relevance bearing in mind the observations of the High Court in
F.C. of T. v. James Flood Pty. Ltd. (1953) 10 A.T.D. 240 at pp. 243-245; (1953) 88 C.L.R. 492 at pp. 506-507 and of Dixon C.J. that the determination whether a payment is a loss or outgoing actually incurred ``is not a matter depending upon proper commercial principles or accountancy practice but upon the legal criterion set by sec. 51(1)'':
Caltex v. F.C. of T. (1960) 12 A.T.D. 170 at p. 172; (1960) 106 C.L.R. 205 at p. 218, cited with approval by Gibbs J. in
Nilsen Development Laboratories Pty. Ltd. v. F.C. of T. 81 ATC 4031 at p. 4038; (1981) 144 C.L.R. 616 at p. 630.

The taxpayer expressed its objection to the Commissioner's disallowance of the fines in its notice of objection of 15 April 1980 in the following terms:

``It is claimed that, while the company does not deliberately set out to flout the law, it is accepted that due to the nature of its business it will be fined on occasions. The costs associated with operating its business in such a manner as to ensure that no fine is incurred would be excessive and, therefore, risk of an occasional fine is considered to be a practicable business risk. In this case, therefore, the fines and penalties fall into the category of a commercial or business loss or outgoing as distinct from being a personal deterrent inflicted on the offender.

As these fines are in the nature of a business loss or outgoing, they fall outside the principle of income tax law that fines are not deductible and are allowable under the provisions of sec. 51(1) of the Income Tax Assessment Act on the basis that these fines are necessarily incurred in carrying on a business for the purpose of producing assessable income.

The fines and penalties paid by the company could not be said to represent an outgoing of capital or to be of a capital private or domestic nature and are not incurred in the course of gaining or producing exempt

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income and a deduction under the provisions of sec. 51(1) is not precluded on these grounds.''

The taxpayer argued that the payment of the fines and penalties were losses and outgoings which were incurred in gaining or producing its assessable income or that they were necessarily incurred in carrying on the business of a carrier for the purpose of gaining or producing its assessable income, within the language of subsec. (1) of sec. 51 of the Income Tax Assessment Act. The Commissioner for his part said that these deductions had been properly disallowed on two separate but related grounds. In the first place he said that a fine or penalty imposed as punishment for breach of the law was inflicted as a deterrent and consequently did not bear the essential character of an income-producing or trading expense. In the second place he said that to allow the deduction of fines or penalties imposed for violation of penal statutes would be contrary to public policy in that it would lighten the burden of the punishment imposed by law and would frustrate the policy of the legislature imposing the penalty.

The basis for each argument appears substantially from two dicta in the High Court of considerable authority which I shall immediately cite in order to expose the problems involved. In the first place in
Herald & Weekly Times Ltd. v. F.C. of T. (1932) 2 A.T.D. 169; (1932) 48 C.L.R. 113, an appeal under the Income Tax Assessment Act 1922, relating to the deductibility of damages for defamation, Gavan Duffy C.J. and Dixon J. said (at A.T.D. p. 172; C.L.R. p. 120):

``The cases of
I.R. Commrs. v. Von Glehn (1920) 2 K.B. 553 and
I.R. Commrs. v. Warnes & Co (1919) 2 K.B. 444, which decide that penalties imposed for breaches of the law committed in the course of exercising a trade cannot be deducted, are distinguishable for a somewhat similar reason. The penalty is imposed as a punishment of the offender considered as a responsible person owing obedience to the law. Its nature severs it from the expenses of trading. It is inflicted on the offender as a personal deterrent, and it is not incurred by him in his character of trader. Lord Sterndale M.R. in Von Glehn's case said: `It is perhaps a little difficult to put the distinction into very exact language, but there seems to me to be a difference between a commercial loss in trading and a penalty imposed upon a person or a company for a breach of the law which they have committed in that trading.'''

Secondly, in
F.C. of T. v. Snowden & Willson Pty. Ltd. (1958) 11 A.T.D. 463; (1958) 99 C.L.R. 431, an appeal under the Income Tax and Social Services Contribution Assessment Act 1936-1953 in which the deductibility of legal costs incurred in contesting allegations of dishonest dealings before a Royal Commission was in question, Fullagar J., in whose reasons Williams J. concurred, repeated with approval (at A.T.D. p. 470; C.L.R. p. 446) the dictum of Gavan Duffy C.J. and Dixon J. in Herald & Weekly Times Ltd. v. F.C. of T. (supra) and Dixon C.J. stated (at A.T.D.p. 465; C.L.R.p. 437):

``There is no analogy here to cases in which fines or penalties are incurred. There the character of the expenditure and the reasons why the law imposes a fine or penalty separate the expenditure from the conduct of the business. It is not to the point that the conduct penalised found its motive in business considerations. Nothing of the kind can be said of the expenditure now under consideration nor is any principle of public policy affected by allowing the deduction.''

Those statements have stood for many years, with only one qualification to their authority, but there is no decision of any Court binding upon me which would directly require me to hold that fines and penalties of the kind presently under consideration cannot be deducted for the purpose of calculating taxable income. The qualification of the principle, to which I have referred and to which I will refer later, is contained in the judgment of Deane and Fisher JJ. in
Magna Alloys & Research Pty Ltd. v. F.C. of T. 80 ATC 4542 at pp. 4563-4564; (1980) 49 F.L.R. 183 at pp. 214-215 where it is suggested that recurrent penalties for parking infringements may not be ``logically severed from the expenses of trading'' and that, if all fines and penalties are to be denied deductibility, it would be preferable to do so ``on the basis of some perceived overriding consideration of public policy''. One or both of the High Court dicta have been followed so as to disallow the deduction of fines and penalties in cases before Boards of Review: see Case D26
(1953) T.B.R.D. 158; Case F61
(1955) 6 T.B.R.D. 364;

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Case R50
(1965) 16 T.B.R.D. 222; Case A80,
69 ATC 432. Recently in the Supreme Court of Queensland Kelly J. held that a penalty imposed for a contravention of sec. 48 of the Trade Practices Act was not deductible:
Madad Pty. Ltd. v. F.C. of T. 84 ATC 4115. Notwithstanding the desirability for uniformity in the interpretation of the Act, I feel no more bound to follow the latter decision as that of a Judge of a Court exercising co-ordinate invested jurisdiction than I would be bound by a judgment of a single Judge of this Court. In other words, although I shall give appropriate weight to the decision, in the circumstances I feel free to examine the matter in the light of other existing authority: cf.
Hamilton Island Enterprises Pty. Ltd. v. F.C. of T. 82 ATC 4302; (1982) 1 N.S.W.L.R. 113 and
Commercial Banking Co. of Sydney Ltd. v. F.C. of T. 83 ATC 4208.

It is neither practicable nor desirable that I should set out in detail the history of sec. 51 of the Act and its interpretation by the High Court. The primary difficulty in relation to the construction of the section in the present case is that the two English decisions, Warnes' case (supra) and Von Glehn's case (supra), were decided under the provisions of the Income Tax Act 1842 and the various rules to the Cases in Sch. D of that Act. Consequently substantial penalties imposed by consent in civil proceedings brought by the Attorney-General under the Customs (War Powers) Act 1915 were held not to be losses ``connected with or arising out of'' the appellant's trade in each case: see Warnes' case (supra) at p. 451) and Von Glehn's case (supra at pp. 565 and 569). Furthermore in Von Glehn's case it appears that their Lordships denied that the penalties had been paid ``for the purposes'' of the appellant's trade within the meaning of r. 3 of Case 1: see at pp. 565-566, 569 and 572.

Whatever be the true basis of the decisions, two further matters appear to me to be significant in them. The first is that the penalties imposed were not strictly criminal, being imposed by civil proceedings for a penalty, and in each case it appears to have been agreed that the appellants did not intend to do anything wrong in the sense that they were not willingly and knowingly a party to a contravention of the Act. Secondly, the aspect of public policy in the two cases is more implicit than explicit.

These two cases have not been overruled in England: see
Spofforth v. Golder (1945) 1 All E.R. 363;
Fairrie v. Hall (1947) 2 All E.R. 141 and
Morgan v. Tate and Lyle Ltd. (1955) A.C. 21 and cf. K. Day ``Tax Consequences of Illegal Trading Transactions'' 1971 British Tax Review 104. But of more importance to the present case is the acceptability of their Lordships' reasoning in the context of the Australian legislation.

The obvious differences in legislation have frequently provided grounds for distinguishing English tax cases: see esp
Fairfax & Sons v. F.C. of T. (1959) 11 A.T.D. 510; (1959) 101 C.L.R. 30 and cf.
Ward & Co. v. C. of T. (1923) A.C. 145. Nevertheless in the judgment of eminent members of the High Court the English cases have stood for certain principles which seemed capable of translation into Australian law.

At first it appeared to me that the apparent acceptance of Warnes' case (supra) and Von Glehn's case (supra) by Gavan Duffy C.J. and Dixon J. in Herald & Weekly Times Ltd. v. F.C. of T. (1932) 2 A.T.D. 169; (1932) 48 C.L.R. 113 was capable of being explained by reference to the different provisions relating to deductions contained in the Income Tax Assessment Act 1922-1929. Section 23(1) of that Act posed but a single test, namely whether the losses and outgoings were ``actually incurred in gaining or producing the assessable income'', but was made subject to further qualification in sec. 25(e) to the effect that no deduction should be made in respect of ``money not wholly and exclusively laid out or expended for the production of assessable income''.

The history of these sections and their relationship to sec. 51(1) of the Income Tax Assessment Act 1936 is simply and lucidly explained by the Full High Court in
Ronpibon Tin N.L. v. F.C. of T. (1949) 8 A.T.D. 431 at pp. 434-437; (1949) 78 C.L.R. 47 at pp. 55-58 and more recently has been examined by Brennan J. (when a member of the Federal Court) in Magna Alloys & Research Pty. Ltd. v. F.C. of T. 80 ATC 4542 at pp. 4545-4547; (1980) 49 F.L.R. 183 at pp. 186-189, a judgment which in my respectful opinion most satisfactorily draws together the leading authorities on sec. 51. In the latter case Brennan J. has demonstrated that neither motive nor purpose, whether subjective or objective, is ``a criterion of deductibility'' (at ATC p. 4545;

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F.L.R. p. 185), although upon an examination of authority he reached the conclusion that the taxpayer's state of mind ``whether intention, or purpose, or motive'' is evidentiary only but as such may have a significant role in ascertaining the character of expenditure in a particular case (at ATC p. 4549; F.L.R. p. 193). He concluded (at ATC p. 4551; F.L.R. p. 196):

``Given a sufficient identification of what the expenditure is for and the character and scope of the taxpayer's income earning undertaking or business, the question whether expenditure is incurred for the purpose of carrying on a business or for the purpose of gaining or producing assessable income does not depend upon the taxpayer's state of mind. The relationship between what the expenditure is for and the taxpayer's undertaking or business determines objectively the purpose of the expenditure. In cases to which a reference to purpose is required or appropriate, objective purpose is required or appropriate, objective purpose will be found to be an element in determining whether expenditure is incurred in gaining or producing assessable income or in carrying on business.''

The basic irrelevance of purpose was affirmed in the joint judgment of Gibbs, Stephen Mason and Wilson JJ. in
F.C. of T. v. Smith 81 ATC 4114 at p. 4117; (1981) 147 C.L.R. 578 at pp. 585-586:

``The section does not require that the purpose of the expenditure shall be the gaining of the income of that year, so long as it was made in the given year and is incidental and relevant to the operations or activities regularly carried on for the production of income. What is incidental and relevant in the sense mentioned falls to be determined not by reference to the certainty or likelihood of the outgoing resulting in the generation of income but to its nature and character, and generally to its connection with the operations which more directly gain or produce the assessable income.''

(Cf. also Ronpibon Tin N.L. v. F.C. of T. (supra) at A.T.D. pp. 435-436; C.L.R. pp. 56-57 and
Charles Moore & Co. (W.A.) Pty. Ltd. v. F.C. of T. (1956) 11 A.T.D. 147 at p. 149; (1956) 95 C.L.R. 344 at p. 351.)

I should add that the word ``purpose'' appearing in the second limb of sec. 51(1) in the expression ``for the purpose of gaining or producing such income'' refers to the purpose for which the business was carried on, not the purpose for which losses and outgoings were necessarily incurred in carrying on that business: see per Menzies J. in John Fairfax & Sons Pty. Ltd. v. F.C. of T. (supra) at A.T.D. p. 520; C.L.R. pp. 49-50.

That very passage in Menzies J.'s judgment points to a particular difficulty in accepting the basis upon which the English cases were decided. There his Honour discussed the observation of Lord
Davey in Strong & Co. of Romsey Ltd. v. Woodifield (1906) A.C. 448 at p. 483 wherein his Lordship said that it was not sufficient that payments be made in the course of or arising out of or connected with a trade but that they ``must be made for the purpose of earning the profits''. These words appear to form the basis of at least a majority of the Judges' reasoning in Von Glehn's case (supra) but Menzies J. said (at A.T.D. p. 520; C.L.R. pp. 50-51) that this test was too narrow and was not applicable to the second limb of sec. 51(1) which required essentially ``that the expense has been incurred `in carrying on business' rather than again, to use Lord Davey's words, `for the purpose of enabling a person to carry on' trade and earn profits''. See also per Brennan J. in the Magna Alloys case at ATC p. 4554; F.L.R. p. 200. Menzies J.'s judgment was agreed in by Kitto and Taylor JJ. but it is by no means clear to what extent Dixon C.J. and Fullagar J. agreed in these particular observations.

The significance of the fundamental irrelevance of purpose in the interpretation of sec. 51 of the present Act may lie in its relevance to the interpretation of the former provisions contained in the 1922 Act considered by the High Court in the Herald & Weekly Times case (supra). In particular the excepting provision, sec. 25(e), which denied a deduction in respect of ``money not wholly and exclusively laid out or expended for the production of assessable income'' had a meaning assigned to it by Dixon J. in
Amalgamated Zinc (De Bavay's) Ltd. v. F.C. of T. (1935) 3 A.T.D. 288 at p. 298; (1935) 54 C.L.R. 295 at p. 309 in which his Honour stated: ``Purpose in itself may be the criterion expressed by the word `for' which occurs in the correlative prohibition contained in section 25(e).'' Cf. also
F.C. of T. v. Gordon (1930) 43 C.L.R. 456 at pp. 462 and 470 and the Herald & Weekly Times case (supra) at A.T.D. pp. 171 and 173-175; C.L.R. pp. 118 and 126-127.

ATC 4467

From this it might be argued that the observations of apparent approval of Warne's case (supra) and Von Glehn's case (supra) in the Herald & Weekly Times case (supra at A.T.D. p. 172; C.L.R. p. 120) can be explained by reference to the purposive interpretation of the exclusion then contained in sec. 25(e). In particular it might be said that the statement that penalties were ``inflicted on the offender as a personal deterrent and... not incurred by him in his character of trader'' suggested that the purpose of the payment was seen as more important than its incidence. Moreover the passage from Lord Sterndale M.R.'s judgment in Von Glehn's case (supra at p. 566) approved in the Herald & Weekly Times case (supra at A.T.D. p. 172; C.L.R. p. 120) depended also on characterising the payment as not being ``a commercial loss in trading''.

No doubt considerations of this kind prompted the reservations recently expressed by Deane and Fisher JJ. in the Magna Alloys case (supra at ATC p. 4563; F.L.R. pp. 214-215) which were stated in these terms:

``It is somewhat difficult to understand how it can be maintained, as an unqualified proposition, that the nature of a penalty severs it from the expenses of trading. Recurrent penalties for parking infringements incurred by a delivery man and per diem penalties for unlawfully using premises for business or commercial purposes in contravention of zoning requirements are not, for example, logically severed from the expenses of trading. The same can be said of fines imposed for actually engaging in some unlawful activities, such as illegal bookmaking or soliciting, for the purpose of earning assessable income. If, when the matter directly arises for decision in the Australian courts, it is to be held that all fines and penalties are to be denied deductibility under the Act, it would seem preferable that it be on the basis of some perceived overriding consideration of public policy which precludes deductibility.''

The question in issue in the Magna Alloys case was the deductibility of costs expended by the company in defending both the company and its directors and employees on a number of criminal charges. A clear distinction can be and was drawn between the two types of expenditure whereby the Court distinguished both the English cases and the dicta in the High Court. Brennan J., although citing the passages in question from the High Court judgments, did not directly attack their authority but did suggest that the principle in question derived from Lord Davey's statement in Strong & Co. of Romsey Ltd. v. Woodifield, referred to above.

If the Commissioner's argument depended only on the approval contained in the Herald & Weekly Times case (supra) of the English decisions, I would have found the observations of Deane and Fisher JJ. compelling. However, the subsequent reference to the cases and the reasoning upon which they were based in F.C. of T. v. Snowden & Willson Pty. Ltd. (1958) 11 A.T.D. 463; (1958) 99 C.L.R. 431 cannot be so easily explained away. Although that appeal did not place in issue the deductibility of fines and penalties, it was decided well after the introduction of sec. 51(1) in the 1936 Act and after the authoritative exposition by the High Court of the differences between the sections in the 1922 and 1936 Acts in the Ronpibon Tin case discussed above. I find it hard to believe that such careful Judges as Dixon C.J. and Fullagar and Taylor JJ. would refer to the English cases, or at least to the distinction drawn by them, in terms of explicit or implicit approval without believing that the reason for excluding such fines and penalties from deductibility had been properly stated in the earlier cases and that those reasons remained a valid ground for refusing to permit their deduction under the 1936 Act. In the judgment of Fullagar J. the reasoning of Gavan Duffy C.J. and Dixon J. in the Herald & Weekly Times case was reproduced with approval (at A.T.D. p. 470; C.L.R. p. 446) and in his reasons for judgment Williams J. agreed. In the case of Dixon C.J. he restated his reasons for treating the payment of fines and penalties differently after stating the limited significance of the word ``necessarily'' in the second limb of sec. 51(1) in these terms (at A.T.D. p. 464; C.L.R. p. 437):

``Logical necessity is not a thing to be predicated of business expenditure. What is meant by the qualification is that the expenditure must be dictated by the business ends to which it is directed, those ends forming part of or being truly incidental to the business.''

The question then arises as to the relationship between the principles stated in the dicta of the

ATC 4468

High Court in the Herald & Weekly Times case (supra) and the Snowden & Wilson case (supra) and the general principles now accepted as to the proper interpretation of sec. 51(1). Those principles can be restated as follows for present purposes, bearing in mind that whatever has been and will be said as to the interpretation of the section is but a gloss on the words of the section. In the first place for a loss or outgoing to be deductible under the first limb of the section, it must be a loss or outgoing incurred in the course of gaining or producing assessable income and must be incidental and relevant to that end: Ronpibon Tin N.L. v. F.C. of T. (supra) at A.T.D. p. 435; C.L.R. pp. 56-57; Charles Moore & Co. (W.A.) Pty. Ltd. v. F.C. of T. (1956) 11 A.T.D. 147 at p. 149; (1956) 95 C.L.R. 344 at p. 351;
F.C. of T. v. Finn (1961) 12 A.T.D. 347 at p. 351; (1961) 106 C.L.R. 60 at p. 68. Under the second limb it must be shown that the loss or outgoing was necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income in the sense that it was clearly appropriate and adapted for the purpose of earning such income: Ronpibon Tin N.L. v. F.C. of T. (supra) at A.T.D. p. 435; C.L.R. p. 56;
F.C. of T. v. South Australian Battery Makers Pty. Ltd. 78 ATC 4412 at p. 4416; (1978) 140 C.L.R. 645 at p. 653. In the second place, to come within the meaning of the subsection, it is both sufficient and necessary that the occasion of the loss or outgoing should be found either in whatever is productive of assessable income, or in the carrying on of a business for the production of assessable income, or if none be produced in each case, in whatever would be expected to produce assessable income. Ronpibon Tin N.L. v. F.C. of T. (supra) at A.T.D. p. 436; C.L.R. p. 57;
A.G.C. (Advances) Ltd. v. F.C. of T. 75 ATC 4057 at p. 4072; (1975) 132 C.L.R. 175 at p. 198.

Thus the true test of deductibility is not purposive or causal, but depends upon what is occasioned by, or is incidental but relevant to, the earning of assessable income. So it is clear that damages paid in respect of a tort committed by a taxpayer can be deducted, even though the obligation to pay them was the unintended consequence of the taxpayer's activities: cf. Herald & Weekly Times Ltd. v. F.C. of T. (supra at A.T.D. p. 171; C.L.R. p. 118). Moreover, where a taxpayer has rendered himself liable to prosecution in the course of his income earning activities, the legal costs incurred in defending the prosecution can be deducted notwithstanding that their payment will not advance the income earning capacity of the taxpayer and may not even result in relieving him from any penalty: Magna Alloys & Research Pty. Ltd. v. F.C. of T. (supra).

So it might be thought that the events which give rise to the expenditure of those legal costs would have the necessary relationship to the taxpayer's income earning activities to satisfy the tests set out above. Yet members of the High Court, particularly in the Snowden & Willson case (supra), appear to have said that the nature of the liability giving rise to the imposition of a fine and penalty ``separate[s] the expenditure from a conduct of the business'' (at A.T.D. p. 465; C.L.R. p. 437). On behalf of the Commissioner it was argued that the explanation for this distinction or severance followed from an additional test of deductibility which requires the Court to look to the ``essential character'' of the expenditure itself, as was argued on behalf of the taxpayer in the Magna Alloys case (supra at ATC pp. 4545 and 4557; F.L.R. pp. 187 and 206). It was said that this followed from an observation by Williams, Kitto and Taylor JJ. in
Lunney v. F.C. of T. (1958) 11 A.T.D. 404 at p. 412; (1958) 100 C.L.R. 478 at p. 497 that the various tests of deductibility propounded earlier by the Court in cases such as the Ronpibon case (supra) ``were intended as a reference, not necessarily to the purpose for which an item of expenditure had been incurred, but, rather to the essential character of the expenditure itself''. This test was again relied upon in
F.C. of T. v. Forsyth 81 ATC 4157; (1981) 148 C.L.R. 203 and
Handley v. F.C. of T. 81 ATC 4165; (1981) 148 C.L.R. 182. Perhaps the most useful way of looking at this test in the context of events which undoubtedly arise in the course of carrying on a business may be seen in the earlier case of Charles Moore & Co. (W.A.) Pty. Ltd. v. F.C. of T. (1956) 11 A.T.D. 147; (1956) 95 C.L.R. 344 and in particular in the joint judgment of Dixon C.J., Williams, Webb, Fullagar and Kitto JJ. at A.T.D. p. 149; C.L.R. p. 351:

``Phrases like the foregoing or the phrase `incidental and relevant' when used in relation to the allowability of losses as deductions do not refer to the frequency, expectedness or likelihood of their

ATC 4469

occurrence or the antecedent risk of their being incurred, but to their nature or character. What matters is their connection with the operations which more directly gain or produce the assessable income.''

(Emphasis added.)

I am not entirely confident that the later test of ``essential character'' is helpful or useful, at least in the present context, where no distinction is being drawn between income-earning and private, domestic or capital expenditure.

Nevertheless the test in the Charles Moore case uses the very words which were relied upon in the earlier dicta in the High Court to distinguish the payment of fines and penalties. In the Herald & Weekly Times case (supra at A.T.D. p. 172; C.L.R. p. 120) Gavan Duffy C.J. and Dixon J. refer to a penalty imposed as a punishment and as a personal deterrent by saying: ``Its nature severs it from the expenses of trading'' (emphasis added). Again in the Snowden & Willson case (supra at A.T.D. p. 465; C.L.R. p. 437) Dixon C.J. in referring to cases in which fines and penalties had been incurred said: ``There the character of the expenditure and the reasons why the law imposes a fine or penalty separate the expenditure from the conduct of the business'' (emphasis added). Thus it seems that it is the nature of the penalty and the character of the expenditure which takes such outgoings outside the expenses of trading. The fine or penalty no doubt arises out of acts performed in the course of the taxpayer's business, but the obligation to pay the fine or penalty derives from the law itself and the need to pay a fine or penalty ought not to be characterised as being either incidental or relevant to the gaining or producing of assessable income, nor should it be characterised as an outgoing which was clearly appropriate and adapted for the purpose of gaining or producing the assessable income of a business. Of course, there is difficulty in seeing why the ``occasion'' of the outgoing being the payment of a fine or penalty is not found in the carrying on of the business or in producing assessable income, but I cannot, for the present, accept the dictum of Deane J. and Fisher J. in the Magna Alloys case (supra at ATC pp. 4563-4564; F.L.R. pp. 214-215) that a distinction can be drawn between more serious fines and penalties and recurrent penalties for such things as parking infringements. In the first place the whole line of authority in this matter derives from cases in which there was not strict liability, nor even criminal liability, although the English cases involved breaches of a serious penal statute. Secondly, the law imposes a penalty, albeit often a small penalty, for the contravention of parking and other traffic regulations and the fact that such penalties and fines may have to be paid frequently rather than on an isolated occasion does not to me appear to detract from the distinction which the earlier High Court cases were trying to draw. I shall return to this question again in considering the policy of the law which might in any case deny such a deduction to a taxpayer, but on the basis of existing authority I cannot accept that recurrent penalties for parking and traffic infringements are in some way not severed from the expenses of trading whereas penalties paid for breach of a customs statute can be severed.

I am not entirely satisfied that I have isolated the real distinction made in the earlier High Court cases, but those cases have stood for a long time as denying the right to deduct fines and penalties and I do not believe that I should depart from the considered observations of so many Judges of the High Court. In terms of authority I consider the position not entirely different to that which Dixon C.J. found himself in Lunney's case (supra) where, although there was no direct authority of the High Court or of any Australian Court on the meaning of sec. 51 as to travelling expenses, nevertheless he refused to depart from authorities which had been unquestioned until that case was heard, notwithstanding that he would have had ``misgivings about the conclusion'' if the matter were to be ``worked out all over again on bare reason'' (at A.T.D. p. 405; C.L.R. p. 486). In Lunney's case there were decisions on different legislation both in England and in Australia and there were decisions of the Board of Review; in the present case there are both decisions in England and of Boards of Review. There is the one recent Australian case to which I have referred (Madad's case (supra)) and a New Zealand case on similar legislation
Robinson v. Commr. of I.R. (1965) N.Z.L.R. 246) and there are the dicta of the High Court all pointing in one direction, with the recent dicta in the Federal Court being the only possible pointer in the other direction. I add that in the light of the different legislation involved I do not find the recent Canadian case of
Day and Ross Ltd. v. R. (1977) 1 F.C. 780 of any great assistance.

ATC 4470

I therefore conclude that in relation to the fines directly imposed upon the company and paid by it no deductions should be permitted in respect of the fines and penalties paid. However, in the present case the company paid not only fines and penalties imposed upon itself but also paid fines and penalties imposed on its employees and independent contractors. The considerations applicable to penalties and fines imposed on the company are not necessarily applicable to those imposed on employees and contractors.

The liability in the case of those fines and penalties is a liability of the employee or subcontractor and the necessity to pay those fines and penalties does not arise because the law imposes that obligation on the company. It is clearly a business decision in each case to see that the fine or penalty is either paid directly or reimbursed to the relevant employee or subcontractor. Moreover the necessity to pay the fine arises out of commercial considerations in the sense that the payment has a purpose of maintaining industrial harmony with the company's employees and sub-contractors. I do not think that anything said in the earlier High Court cases was directed to the voluntary payment of fines and penalties imposed on others, certainly not in the context of the proper interpretation of the relevant sections, although there may well be public policy considerations which may be thought equally applicable. At present I am considering only the proper construction of sec. 51(1) and I consider that the ``occasion'' of these payments on behalf of employees and sub-contractors can be found in what was productive of assessable income and the relevant necessity to pay them was imposed not by the law but by commercial considerations which are not outside the operation of the section.

For that reason it is necessary to go further in this case to see whether the public policy considerations expressly or impliedly referred to in the earlier authorities would deny the right to a deduction for fines and penalties imposed on employees and sub-contractors, as well as those imposed on the company itself.

In considering whether public policy denies the taxpayer the right to deduct the sums paid by it as fines and penalties, a number of issues arise. In the first place there is the question, what is the public policy applicable to the allowance of deductions under the Income Tax Assessment Act? The second is how to apply that rule of public policy to the facts in the present case.

I have been much oppressed by the question of what is public policy. Notwithstanding discussion in many cases and academic works its nature remains elusive and it has been but rarely defined. Jordan C.J. once defined public policy In
Re Jacob Morris, Deceased (1943)43 S.R. (N.S.W.) 352 at p. 355 as follows:

``The phrase `public policy' appears to mean the ideas which for the time being prevail in a community as to the conditions necessary to ensure its welfare; so that anything is treated as against public policy if it is genuinely regarded as injurious to the public interest.''

In relation to the law of contract Isaacs J. defined the Court's role as follows in
Wilkinson v. Osborne (1915) 21 C.L.R. 89 at p. 97:

``In my opinion the `public policy' which a Court is entitled to apply as a test of validity to a contract is in relation to some definite and governing principle which the community as a whole has already adopted either formally by law or tacitly by its general course of corporate life, and which the Courts of the country can therefore recognize and enforce. The Court is not a legislator; it cannot initiate the principle; it can only state or formulate it if it already exists.''

I am however convinced in the present case that the principle of public policy invoked is not identical to that applied in relation to invalidity of contracts although it may spring from the same roots. Perhaps what is really called in aid in the present case is what in other cases has been described as ``the public interest'' or at least the general policy of the law. This concept has been best put by Holmes The Common Law London ed. (1968) pp. 31-32:

``Every important principle which is developed by litigation is in fact and at bottom the result of more or less definitely understood views of public policy; most generally, to be sure under our practice and traditions, the unconscious result of instinctive preferences and inarticulate convictions, but nonetheless traceable to views of public policy in the last analysis.''

ATC 4471

The problem in the present case is whether the contravention of one statute, or a number of statutes, should have any consequence in considering the proper application of another statute. It is not therefore any general question of morality which must be ascertained, but what is in fact the consequence of the clear and admitted breach of a number of statutes or regulations. In this context I would prefer to use the expression ``the policy of the law'' rather than the much overworked expression ``public policy'': cf.
Newcastle Diocese Trustees v. Ebbeck (1960) 104 C.L.R. 394 at p. 406 per Dixon C.J. However, for practical reasons I shall continue to use the latter expression.

Questions of public policy arise in many contexts. Perhaps the most familiar are the complex rules which govern illegality in the law of contract, where public policy may prevent the enforcement of a contract for one of a number of reasons. In the first place certain recognised heads of public policy may provide the basis for a claim of illegality, such as where the object of a contract is directly contrary to law, whether the common law or statute, or where the object is contrary to good government or the proper working of justice or where the object is injurious to family life or is in restraint of trade. Secondly a contract may be rendered unenforceable by statute or regulation, either by being declared directly void, or more commonly, by implication from the nature of the statute or the policy it is said to promote. See e.g.
Fender v. St. John Mildmay (1938) A.C. 1;
Beresford v. Royal Insurance Co. (1938) A.C. 586;
Brooks v. Burns Philp Trustee Co. Ltd. (1969) 121 C.L.R. 432;
Yango Pastoral Co. Pty. Ltd. v. First Chicago Australia Ltd. (1978) 139 C.L.R. 410: and see generally Chitty on Contracts 25th ed. ch. 16. Further the validity of dispositions by settlement and will may be impugned on similar grounds: see e.g.
Egerton v. Brownlow (1853) 4 H.L.C. 1; 10 E.R. 359; Newcastle Diocese Trustees v. Ebbeck (supra). Again principles of public policy (described as ``the public interest'') are called in aid to define certain claims of privilege: see, e.g.
D. v. N.S.P.C.C. (1978) A.C. 171;
Sankey v. Whitlam (1978) 142 C.L.R. 1. A final example of the scope of public policy is the line of authority in which illegality has been relied upon to deny a claim in tort: see, e.g.
Smith v. Jenkins (1970) 119 C.L.R. 397;
Progress and Properties Ltd. v. Craft (1976) 135 C.L.R. 651,
Jackson v. Harrison (1978) 138 C.L.R. 438. Questions of public policy and the public interest have been raised in many other cases. See generally as to public policy: Winfield ``Public Policy in the English Common Law'' (1928) 42 Harvard L.R. 76; Lord Wright ``Public Policy'' in Legal Essays and Addresses (1939) pp. 66-95; Stone Social Dimensions of Law and Justice (1966) pp. 182-198; Lloyd Public Policy (1953) passim; Roscoe Pound on Jurisprudence vol. III pp. 268-306; Symmons ``Function and Effect of Public Policy in Contemporary Common Law'' (1977) 51 A.L.J. 185; Paton on Jurisprudence pp. 134-162.

Many aspects of public policy have been and remain controversial largely because the Courts have attempted to express and apply policies which did not derive directly from the common law or statute, but were derived from what were said to be the accepted social or economic beliefs of the time. These beliefs have not always remained constant, so that difficulties arise in determining whether ``public policy'' can change or expand. I do not consider that these beliefs, or the public policy to which they have given rise, are in issue in the present case.

As Lord Simon of Glaisdale said in D. v. N.S.P.C.C. (supra) at p. 235: ``Every rule of law is a legal manifestation of public policy.'' Consequently there can be no doubt that public policy is found reflected in the statutes or regulations presently under consideration, for each of those statutes and regulations is a formal expression or declaration of the public will. What is really in issue is the policy of the law in seeing that those statutes and regulations are enforced and maintained and the question arises whether this is a case in which they should be enforced or maintained and the question arises whether this is a case in which they should be enforced or maintained for a not dissimilar reason to that which requires the contravention of statutes and regulations to lead to the unenforceability of contracts or the failure to recover in respect of the commission of torts. But in the present case there are not merely alleged contraventions of statutes and regulations, for there has in fact been a penalty imposed in each case pursuant to the relevant statute or regulation. (For present purposes I ignore the fact that the penalty paid did not always follow a conviction as such and in a number of cases was paid in circumstances where payment did not involve any technical admission of guilt.) Consequently what is in issue is the effect or consequences of payment of a fine or penalty for contravention of a statute or regulation.

ATC 4472

For the Commissioner it has been contended that to allow the deductions in each case would be to frustrate the policy of the legislature imposing the penalty in that it would directly or substantially dilute or lighten the burden of the punishment imposed by law. One basis for this contention was that the Court ought not to lend its assistance to a wrongdoer to benefit from its own unlawful conduct: cf.
Cleaver v. Mutual Reserve Fund Life Association (1892) 1 Q.B. 147 at p. 156 and Beresford v. Royal Insurance Co. Ltd. (supra) at pp. 599, 603 and 605. On another occasion it was said: ``It is clear that the law is, that no person can obtain, or enforce, any rights resulting to him from his own crime'': In the Estate of Crippen (1911) P. 108 at p. 112 per Sir Samuel Evans P. These cases and many others were referred to recently by Brooking J. in
Church of the New Faith v. Commr. of Pay-roll Tax 82 ATC 4198 at pp. 4222-4223; (1983) 1 V.R. 97 at pp. 140-142. However, the basis for Brooking J.'s judgment in the Full Court in that case was one which was not supported in argument before the Full Court nor before the High Court when the judgment of the Full Court was reversed: see 83 ATC 4652; (1983) 57 A.L.J.R. 785. In any event the benefit claimed in that case was an exemption from payroll tax which derived from the appellant's contention that it was a religion, whereas Brooking J. held its practices to be illegal and contrary to the now repealed Psychological Practices Act 1965. The claim for a deduction of penalties is therefore not precisely analogous to the claim made by the appellant in that case. At one stage it was suggested that the present case should be resolved by the application of the Latin maxim ex turpi causa non oritur actio, but I believe that that maxim should be confined to claims in contract: see Smith v. Jenkins (supra) at p. 414 per Windeyer J. and Jackson v. Harrison (supra) at p. 452 per Mason J.

Undoubtedly, however it may be expressed, there is a general rule that the Courts ought not to allow a person to benefit from his own wrongdoing: cf. Cleaver's case (supra) and Beresford's case (supra) at pp. 598-599. Nevertheless the rule has been qualified by reference to the nature of the wrongdoing in question, particularly in the case of statutory or regulatory offences. It is important to realise that such qualification has arisen in the context of both contract and tort law where there are competing common law policies. For example there is the general principle that contractual obligations deliberately undertaken ought to be enforced: cf. Beresford's case (supra) at p. 603. In tort the illegality alleged has borne, more frequently than not, no relationship to the duty which the plaintiff desires to have enforced: cf. Jackson v. Harrison (supra) at pp. 455 and 457. Further in many such contract and tort cases the persons intended to be protected by the criminal law are not party to the civil litigation and the defendant obtains some unintended benefit or relief. More often than not these conflicts in policy arise when the alleged illegality arises out of some comparatively minor regulatory offence. Thus in that type of case the question is properly asked what is the reason behind and the purpose to be served by the enforcement of the statute or regulation: see the Yango Pastoral Co. case (supra) at p. 427. It was in the context of an alleged illegality arising from a relatively minor regulatory provision in the latter case that Mason J. (at p. 429) observed:

``There is much to be said for the view that once a statutory penalty has been provided for an offence the rule of the common law in determining the legal consequences of commission of the offence is thereby diminished.''

Immediately thereafter his Honour referred to his judgment in the tort case of Jackson v. Harrison (supra) and appeared to accept that the principle denying from criminal acts discussed in those cases should not apply to all statutory offences. Nevertheless, his Honour did not appear to depart from the view that the main considerations from which the primary rule arose could be seen ``in the reluctance of the Courts to be instrumental in offering an inducement to crime or removing a restraint to crime'' (ibid).

Where there are no competing considerations of public policy then I believe the Courts must be stronger in refusing to offer inducements to crime or in removing restraints to crime. For this purpose I do not believe that offences can be divided into various degrees of criminality: cf. Smith v. Jenkins (supra at p. 423) per Windeyer J. I shall return to this matter later.

What then is the policy of the law which would deny the taxpayer the right to deduct from its assessable income the claimed fines and penalties? Not only must the Commissioner establish that the right to deduct fines and

ATC 4473

Paragraph (f) and the consequential extension to the definition of ``employer'' were inserted by amendment in 1982 (Act No. 128 of 1982). The same amendment introduced to sec. 3 another subsection in the following terms:

``(2a) For the purposes of paragraph (f) of the definition of `wages' in subsection (1) of this section, `employment agent' means a person (in this definition referred to as the agent) who by an arrangement procures the services of a person (in this definition referred to as the worker) for another person (in this definition referred to as the client) under which arrangement -

  • (a) the worker does not become the employee of either the agent or the client but does carry out duties of a similar nature to those of an employee; and
  • (b) remuneration is paid directly or indirectly by the agent to the worker or to some other person in respect of the services provided by the worker,

but this subsection does not apply to the current term of any arrangement entered into by an employment agent before 12 October 1982 which extends after 1 January 1983 if the Commissioner is satisfied that no provision was made in the arrangement for the payment of pay-roll tax in respect of that term.''

The amendment took effect from 1 January 1983. It has given rise to these appeals.

The Act imposes a tax on wages paid or payable by an employer. However, like the Commonwealth legislation which it followed, the Act always has applied to salary, commissions, bonuses and to other payments which are made in cash or in kind for services rendered. Such payments are well outside the ordinary meaning of ``wages'' - that is, amounts paid periodically for other than ``white-collar jobs''. As Mason, Murphy and Wilson JJ. acknowledged in
Murdock & Ors. v. Commr. of Pay-roll Tax (Vic.) (1980) 143 C.L.R. 629 at p. 644, the definition of ``employer'' tended to denude the term of any significance beyond the fact that it referred to any person by whom wages are paid. Nevertheless, a number of cases (e.g.
F.C. of T. v. J. Walter Thompson (Australia) Pty. Limited (1944) 69 C.L.R. 227,
Mutual Acceptance Company Ltd. v. F.C. of T. (1945) 69 C.L.R. 389 and
Queensland Stations Pty. Ltd. v. F.C. of T. (``the Drover's case'') (1945) 70 C.L.R. 539) show that the Commonwealth legislation was aimed at consideration moving from an ``employer'' to an ``employee'' as those terms are known and understood at common law and that its application depended upon the existence of the relationship of employer and employee or master and servant. Whether the application of the Act still depends upon the existence of such a relationship is a matter which was debated in this case.

The provisions of the 1982 amendment are expressed in such a way as to show continued departure from the ordinary meaning of ``wages'' and ``employer''. If para. (f) is read without reference to the earlier part of the definition of ``wages'' but in conjunction with subsec. (2a), clearly the word embraces the amounts paid to the subcontractors by the appellants. Equally clearly, each of the appellants is an ``employment agent'' within the meaning used in that subsection and an ``employer'' within the definition of that word in subsec. (1). Prima facie, however, the earlier part of the definition of ``wages'' shows that the Act does not apply unless the payment is made to ``an employee as such''. As there is no express definition of ``employee'' in the Act and as the ordinary or common law meaning of the word would not embrace a subcontractor, the real issue in this case is whether the 1982 amendment has had the effect of transforming each of the subcontractors in question into an ``employee''.

In the Mutual Acceptance case at p. 396, Latham C.J. pointed out that in the phrase ``employee as such'' the two latter words make it clear that the definition of ``wages'' includes only payments made to an employee in connection with and by reason of his service or in respect of some incident of his service - so that ``a merely personal gift by an employer to a person who happens to be an employee would not be included within `wages' though a bonus paid to employees because they were employees would be so included''.

F.C. of T. v. Barrett & Ors. 73 ATC 4147 at p. 4150, (1973) 129 C.L.R. 395 at p. 403 Stephen J. expressed the view that the word ``employee'' was used in the Commonwealth legislation as ``the ultimate touchstone of liability of tax''. Since then, it seems, the word has lost that quality. In the Murdoch case at p.

ATC 4474

frustration of the law by diluting those fines and penalties. For present purposes I care not which approach be taken. They each lead to the same conclusion. For reasons I have already expressed the cases and dicta are of sufficient authority for me to consider that I should follow them. The critical feature of the fines and penalties are that they are imposed for purposes of the law in order to punish breaches thereof and that makes it undesirable that they should be deductible, whether for serious or minor regulatory offences and whether they are imposed directly on the taxpayer or on its employees or third party contractors. In the latter case the policy of the law ought not to differ whether or not the money was originally paid by, or the original liability fell on, persons other than the taxpayer.

Although I think either basis of this public policy leads to the same conclusion, I prefer to reach it by holding that the policy of the law denies the right to claim these deductions on the ground that it would frustrate the legislative intent in that the punishment imposed would be, or would be seen to be, diminished or lightened. Some argument was addressed to me supported by Canadian and American authority and, in particular, academic discussion as to the logical basis for this asserted lightening. It was said that to allow the deductions would not provide any benefit to the taxpayer but would in fact add to its punishment by increasing its liability to tax. On the other hand, it was argued that the allowing of deductions would give a benefit to the taxpayer to the extent of the tax saved, 46 cents in each dollar of the claimed deductions.

The first argument assumes that by ordinary accounting practices the net profit of the taxpayer is calculated by subtracting from gross profits the expenditure on fines and penalties, among many other items, as was shown by its profit and loss account for the relevant year. Because tax ought to be assessed on this figure, the adding back of the fines and penalties to its income for tax purposes was said to result in yet further expenditure, being 46 cents in the dollar on each dollar so added. I cannot accept that argument: under the Income Tax Assessment Act income tax is paid not upon net profits but upon taxable income calculated after deduction only of allowable deductions, including losses and outgoings permitted under sec. 51: see sec. 48 and cf. F.C. of T. v. James Flood Pty. Ltd. (1953) 10 A.T.D. 240; (1953) 88 C.L.R. 492. Consequently for most allowable deductions, although the taxpayer must lay out the whole of the sum claimed, it will obtain a corresponding benefit in that the result will be a saving of tax to the extent of the rate applicable to the reduction in taxable income. Although the logic of this approach has been challenged, I believe that those deductions, if allowed, would provide such a benefit to the taxpayer. Moreover, I consider that the community, or at least the tax paying members of it, have that belief as to the consequence of the making of payments which are allowable deductions. In other words there is a common understanding that expenditure on deductions is not wholly thrown away, or at all events the expenditure is ameliorated by the tax saving. If that be so, then where the expenditure is upon fines and penalties, whether paid or payable originally by the taxpayer or some other person, it is not right or in the public interest that a proportionate tax saving should be obtained, nor should it be seen by the community to be fair or proper.

This conclusion has also been reached by the Supreme Court in America. Originally I had some misgivings as to the applicability of the reasoning there applied, but in the end I have concluded that the basis, especially the public policy basis, for their decisions derives from the same or at least analogous sources as those on which Australian law is based.

The similarity of the relevant American law was shown in a number of cases from 1943 to 1966 and in several articles, most of which were drawn to my attention by the diligence of counsel. First, the U.S. Internal Revenue Code 1954 appeared then to take a similar approach to the deduction of expenses, for what could be deducted were ``all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business...'': 26 U.S.C. para. 162(a). One may compare the Supreme Court statement that it had ``consistently construed the term `necessary' as imposing only the minimal requirement that the expense be `appropriate and helpful' for `the development of the (taxpayer's) business'''
Commr. of Internal Revenue v. Tellier (1966) 383 U.S. 687 at p. 689; 16 L.ed.2d. 185 at p. 188) with the High Court observations in Ronpibon Tin N.L. v. F.C. of T. (supra) at A.T.D. p. 435; C.L.R. p. 56, referred to above. Nevertheless in Tellier's case 383 U.S. at p. 681; 16 L.ed.2d. at p. 188 it was held that ``the

ATC 4475

federal income tax is a tax on net income'', which might otherwise have pointed to a refusal to allow deductions on public policy grounds.

Secondly, although rules as to public policy and particularly the public interest may and often do vary from country to country, it became apparent from what I read that American rules of public policy have common roots with English and Australian Law. Not only did Winfield's famous article (supra) appear first in the Harvard Law Review, but the text and footnotes of Roscoe Pound's extensive discussion in his Jurisprudence (supra) refer as authority to a large number of English cases, including what he calls the ``classical expression'' of the rule in Egerton v. Brownlow (supra): see Pound loc. cit. p. 271. A similar reliance on English authority is also apparent in Corbin on Contracts vol. 6 para. 1373-1378 and generally Pt. VIII. Finally, a learned note in (1962) 72 Yale Law Journal 108-144 ``Business Expenses, Disallowance and Public Policy'', attributes the origin of the American public policy as to deduction of penalties to Warne's case (supra) itself: see p. 108 n.1. These matters suggest that it is not unreasonable to look for some guidance to the discussion of the relevant rule of public policy by the United States Supreme Court.

The problem arose for final decision in that Court in two cases decided in 1958:
Tank Truck Rentals v. Commr of Internal Revenue (1958) 356 U.S. 30; 2 L.ed.2d. 562 and
Hoover Motor Express Co. v. U.S.A. (1958) 356 U.S. 38; 2 L.ed.2d. 568. In the first of these cases Clark J. for the Court stated the problem and provided its solution, as follows (356 U.S. at p. 34; 2 L.ed.2d. at p. 566):

``Here we are concerned with the policy of several States `evidenced' by penal statutes enacted to protect their highways from damage and to ensure the safety of all persons using them. Petitioner and its drivers have violated these laws and have been sentenced to pay the fines here claimed as income tax deductions. It is clear that assessment of the fines was punitive action and not a mere toll for use of the highways: the fines occurred only in the exceptional instance when the overweight run was detected by the police. Petitioner's failure to comply with the State laws obviously was based on the balancing of the cost of compliance against the chance of detection. Such a course cannot be sanctioned, for judicial deference to State action requires, whenever possible, that a State not be thwarted in its policy. We will not presume that the Congress, in allowing deductions for income tax purposes, intended to encourage a business enterprise to violate the declared policy of the State. To allow the deductions sought here would but encourage continued violations of State law by increasing the odds in favour of non-compliance. This could only tend to destroy the effectiveness of the State's maximum weight laws.

This is not to say that the rule as to frustration if sharply defined national or state policies is to be viewed or applied in any absolute sense... Although each case must turn on its own facts..., the test of non-deductibility always is the severity and immediacy of the frustration resulting from allowance of the deduction...

Certainly the frustration of State policy is most complete and direct when the expenditure for which deduction is sought is itself prohibited by statute... If the expenditure is not itself an illegal act, but rather the payment of a penalty imposed by the State because of such an act, as in the present case, the frustration attendant upon deduction would be only slightly less remote, and would clearly fall within the line of disallowance. The deductions of fines and penalties uniformly has been held to frustrate policy in severe and direct fashion by reducing the `sting' of the penalty prescribed by the State legislature.''

The violation of State maximum weight laws considered by the Supreme Court included not only fines imposed on the appellant and its drivers but also both wilful and innocent violations of those laws. As to the innocent violations Clark J. said (356 U.S. at p. 36: 2 L.ed.2d. at p. 567) that ``Since the maximum weight statutes make no distinction between innocent and wilful violators, State policy is as much thwarted in the one instance as in the other.'' In the other case decided on the same day, Hoover Motor Express Co. v. U.S.A. (supra) all the fines were paid by a trucker for inadvertent violations of State maximum weight laws and the Supreme Court, again speaking through Clark J., held that ``Even assuming that petitioner acted with all due care and without wilful intent, it is clear that allowance of the

ATC 4476

deduction sought by petitioner would severely and directly frustrate State policy'' (356 U.S. at p. 39; 2 L.ed.2d. at p. 570).

Finally, in Tellier's case (supra) the Supreme Court allowed the deduction of the costs of unsuccessfully defending a criminal prosecution and in a judgment delivered by Stewart J. confined the principle against non-deductibility to very limited and defined categories, expressing the basis of the judgment in the earlier cases in these terms (383 U.S. at p. 694; 16 L.ed.2d. at p. 190):

``We upheld the disallowance of deductions claimed by taxpayers for fines and penalties imposed upon them for violating State penal statutes; to allow a deduction in those circumstances would have directly and substantially diluted the actual punishment imposed.''

See also
Commr. of Internal Revenue v. Heiniger (1943) 320 U.S. 467; 88 L.ed.171;
Lilly v. Commr. of Internal Revenue (1952) 343 U.S. 90; 96 L.ed.769; Annotation (1952) 27 A.L.R. 2d. 498; Annotation (1966) 16 L.ed.2d. 1115; Tyler ``Disallowance of Deductions on Public Policy Grounds'' (1965) 20 Tax Law Review 65; Taggart ``Fines, Penalties, Bribes and Damage Payments and Recoveries'' (1970) 25 Tax Law Review 611. I should add that I was also referred to the Canadian case of Day and Ross Ltd. v. R. (supra) on the issue of public policy but the reasoning therein did not provide me any particular assistance.

Those views and the manner in which those principles were applied seem to me to express the proper basis for the policy of the law in disallowing deductions such as those claimed in the present case. They are not strictly authoritative but they express in large manner the reasons why it is against the public interest also in this country to allow such deductions, whether for penalties imposed on the taxpayer or its employees or contractors.

Finally there arises the question whether any distinction should be made between the various classes of fines and penalties whether they be distinguished by reference to the seriousness of the offence, by reference to the intention with which the offence was committed, or by reference to whether or not the taxpayer or his employee or contractor was formally convicted. I consider that none of these factors should lead to any different application of the principles set out above.

Dealing first with the comparative seriousness of crimes and offences, it has here been argued that the regulatory offences with which the taxpayer was charged were of the most minor nature. Some reliance was placed on the dicta in the Magna Alloys case (supra at ATC pp. 4563-4564; F.L.R. pp. 214-215) to which I have already referred but I consider those observations relate to the question whether the payment of such penalties should be considered as the expenses of trading and do not, as I read them, go [to] the question of public policy. Moreover, short of making a simple distinction between indictable offences and those triable summarily (cf.
Munday v. Gill (1930) 44 C.L.R. 38 at p. 86 per Dixon J.), I can see no satisfactory way of categorising offences. A formal distinction based on the method of prosecution does not appear to be a safe method of resolving a question of public policy, for the principles I have discussed above would seem equally applicable to summary offences. Perhaps the dividing line is intended to be drawn at what are sometimes called merely regulatory offences or, again, at offences involving so-called strict liability: cf. Howard: Strict Responsibility p. 1 fn. 2 as to the wide range of terminology used. From time to time it has been suggested that these latter offences do not form part of the criminal law, although, apart from those cases where the proceedings are by civil action for a penalty, the proceedings are always conducted as summary criminal proceedings, whatever be the rules as to the need to show mens rea and as to the application of specific defences. Perhaps the distinction sought to be made is one drawn by the majority of the High Court in
Brown v. Green (1951) 84 C.L.R. 285 at pp. 294-295 where it was said of a certain section of the Landlord and Tenant (Amendment) Act 1948-1949 (N.S.W.) that:

``The legislation does not deal with a branch of the criminal law but with a matter of economic and social regulation, and there is no rule of construction raising a prima facie presumption in such a case that guilty intention is an element in an offence of this character.''

Nevertheless, any attempt to put these regulatory offences entirely outside the realms of criminal law does not appear to have succeeded and they are but rarely dealt with

ATC 4477

except as part of the criminal law in its widest sense. Otherwise the only distinction which appears to be capable of being safely drawn is between those offences for which an information may be laid for an offence and those cases in which penalties may be recovered by civil proceedings whether commenced by common informer or otherwise: cf. the cases referred to in
Li Chia-hsing v. Rankin (1978) 141 C.L.R. 182 at p. 201. The inquiry as to what part forms part of the criminal law and what does not is an interesting but largely academic one, cf. Brett: An Inquiry Into Criminal Guilt (1963) passim esp. Chapter II; Howard: Strict Responsibility (1963); Brett ``Strict Responsibility'' (1974) 37 M.L.R. 417; Jerome Hall: General Principles of Criminal Law, Chapters V, VI and X; and Leigh: Strict and Vicarious Liability (1982) Chapters 2,3 and 6. The question only seems relevant where a statute or other provision refers specifically to ``crime'' or ``the criminal law'' as it was in para. 27 of sec. 91 of the British North America Act 1867 which gave exclusive jurisdiction to the Canadian Dominion Parliament over criminal law and which has provided constant problems for the Canadian Courts: cf. e.g.
Proprietary Articles Trade Association v. A.G. for Canada (1931) A.C. 310 and
Johnson v. A.G. for Alberta (1954) 2 D.L.R. 625. The problem and the difficulty of its solution may in fact provide a reason, sub silentio, for the decision earlier referred to of Day and Ross Ltd. v. The Queen (supra). The issue is perhaps best summarised by Lord Atkin in the Proprietary Articles case (supra at pp. 323-324):

``Criminal law connotes only the quality of such acts or omissions as are prohibited under appropriate penal sanctions by authority of the State. The criminal quality of an act cannot be discovered by intuition; nor can it be discovered by reference to any standard but one: Is the act prohibited with penal consequences? Morality and criminality are far from coextensive; nor is the sphere of criminality necessarily part of a more extensive field covered by morality: unless the moral code necessarily disapproves all acts prohibited by the State, in which case the argument moves in a circle. It appears to their Lordships to be of little value to seek to confine crimes to a category of acts which by their very nature belong to the domain of `criminal jurisprudence'; for the domain of criminal jurisprudence can only be ascertained by examining what acts at any particular period are declared by the State to be crimes, and the only common nature they will be found to possess that they are prohibited by the State and that those who commit them are punished.''

Consequently, I consider no useful purpose would be served in determining whether each of the offences here considered were ``crimes'' or not, for the answer I think is obvious, at least in the widest sense of the word.

In the present case it has not been submitted that any of the offences were not ordinarily those which would be prosecuted by way of information. What was submitted, however, was that a special procedure was adopted in a substantial number of cases by which an infringement notice was given and the taxpayer, or an employee or sub-contractor, paid before the matter came to Court. It was further suggested that in law, by reason of the proper interpretation of these provisions, there was no conviction and no admission of guilt on anybody's part. Moreover, at least under subsec. (10) of sec. 11 of the Victorian Road Traffic Act 1958 it was said that where an infringement notice was served but the matter ultimately went to the Court, the conviction imposed was deemed not to be a conviction for any purpose, with minor and perhaps irrelevant exceptions. As to the latter point I consider that it did not affect the nature of the original offence and that it only changed the nature of the ``conviction'' in those cases where offences were committed and an infringement notice originally served but for one reason or another proceedings were not taken. In my opinion each of these differences in procedure do not detract from the nature of the offence as being a criminal offence in the widest sense.

It was further argued that many of these offences were of a very minor nature and that consequently the policy of the law as to the deductibility of fines and penalties for these offences should be different. I cannot accept that that is so. Each of the offences involved some regulation of activity for the general good of the community. There is perhaps no victim of any of these offences, but it has been thought desirable to control the activities of people on the roads for a number of reasons. Some of the offences in question directly involved matters of safety in the sense that non-compliance with

ATC 4478

these regulations put at risk other users of the road. Such regulations are clearly designed for the protection of the public. It matters not in any individual case whether one can give direct evidence of a particular risk occurring, since the object of such regulation is to prevent injury to other users of the highway. An overloaded truck or a speeding car may cause death or serious injury, although that is not the invariable consequence of such anti-social behaviour. In my opinion it would be impossible to distinguish between offences according to some intuitive judgment of moral responsibility.

Again it was said that the parking offences, in particular, involved no serious harm to the public. That might ordinarily be so, but parking offences occur in a variety of situations. Where the parking offence occurs when a vehicle is parked near to double lines on a narrow road or where a delivery van is parked next to an intersection opposite a bank, then there clearly is a potential serious risk to other road-users. On the other hand, the use of a parking space beyond the permitted time has no such significance but it nevertheless is an example of social regulation in that it promotes the fair distribution of limited parking space between road-users. The consequence of a lack of safety or a lack of fairness may not inevitably follow from a breach of any of these regulations, but it cannot be denied that the regulations are designed for the general public good and consequently the policy of the law should be to support the enforcement of those regulations. For this purpose one could not embark upon an inquiry as to the precise effect of a breach of regulation in each case, for that is a matter which relates only to sentencing.

Consequently, the policy of the law referred to earlier in this judgment must apply to all fines and penalties for offences designed to protect the public or a significant part of the public, however little moral turpitude may be involved (cf. the American cases referred to above). In this respect I have been worried by one line of authority referred to me, namely that which culminated in England in the decision in
Osman v. J. Ralph Moss Ltd. (1970) 1 L1.L.R. 313, in which a claim for an indemnity in respect of a fine for a breach of the Road Traffic Act 1960 was permitted on the ground that the conviction involved no culpable negligence: see at pp. 316, 318 and 319-320. The line of authority which denies the right to claim damages or an indemnity in respect of a fine or penalty for breach of the criminal law goes back at least to
Colburn v. Patmore (1834) 1 C., M. & R. 73; 149 E.R. 999, a case which has been relied upon, perhaps wrongly, for the wider proposition that no person who has committed a criminal act should be permitted to recover in tort from another who acted jointly with him: cf. Jackson v. Harrison (supra at pp. 442 and 461). In fact, Colburn v. Patmore appears authority only for the proposition that a person in such circumstances ought not to be able to recover the amount of a criminal fine on the ground that the allowance of that claim would undermine the sanction of the criminal law: cf. Jackson v. Harrison (supra at p. 460) and Weinrib ``Illegality as a Tort Defence'' (1976) 26 University of Toronto Law Journal, pp. 51-54.

R. Leslie Limited v. Reliable Advertising and Addressing Agency Limited (1915) 1 K.B. 652 Rowlatt J. refused to allow the plaintiff to be indemnified in contract for fines inflicted under the Betting and Loans (Infants) Act 1892. Although his Lordship reached his conclusion, consistent with
Cointat v. Myham (1913) 2 K.B. 220, upon the ground that the plaintiff was knowingly involved in the offence, he expressed this opinion (at pp. 658-659):

``I confess that when first I saw the nature of this action I formed and indicated a strong opinion that it was misconceived, on the broad ground that a person convicted of a criminal offence should never have the assistance of a civil court to ease himself of the punishment by the recovery over either of the amount of any fine or cost or of damages to compensate him for any imprisonment, and that there could be no difference between cases where the legislature had made an act or default punishable as a crime without the existence of a guilty mind and any other class of offence.... The object sought to be secured by such a statute in the public interest is not that so much money shall be collected by way of a fine, but that a person who puts himself in such and such a position shall be punished by way of fine in order to make such persons prevent such things happening again, and I should have thought that the statute could not have had its effect if the convicted person could obtain compensation in a civil court for the punishment inflicted upon him in the criminal court.''

ATC 4479

The policy of the law in the present case in many ways reflects the opinion there expressed by his Lordship who, as will be recalled, was the Judge who four years later decided at first instance both Warne's case (supra) and Von Glehn's case (supra). However, the Court of Appeal in Osman v. J. Ralph Morris Ltd. (supra) did not agree that this was a general proposition in the case of actions for damages for recovery of fines, preferring to distinguish between cases of absolute liability and those which involve fault, negligence or dishonesty. It is not necessary for me to resolve that conflict of authority in the present case, but I should point out that in those cases there existed the countervailing policies of the law to uphold contracts and not to exonerate an unmeritorious defendant for reasons unconnected with his own actions. Nor am I impressed by the possibility that a taxpayer might insure against such liabilities on the basis of authority such as Osman v. J. Ralph Moss Ltd. (supra): but cf. MacGillivray and Parkington on Insurance Law, 7th ed. para. 456. It is not necessary to decide whether a premium for such a policy would be deductible under the Income Tax Assessment Act, for I consider the direct deduction of fines and penalties imposes a different problem. Consequently, I would conclude that the policy of the law as to the deductibility of fines and penalties should not distinguish between strict liability offences and those involving mens rea nor should it distinguish between fines and penalties resulting from deliberate, negligent or innocent breaches of the law. The latter distinction is clearly denied by the United States Supreme Court cases of Tank Truck Rentals v. Commr. of Internal Revenue (supra) and Hoover Motor Express Co. v. U.S.A. (supra). In each case penalties for inadvertent or ``innocent'' breaches of maximum weight road laws were held to be not deductible on grounds of public policy. The same principle should apply here.

Moreover, the American cases also point to the conclusion that it matters not whether there is a direct imposition of a fine or penalty upon conviction or whether they are paid by way of compromise of a prosecution or in some other manner: cf.
United States v. Jaffray (1938) 97 F.2d. 488 at pp. 492 and 493 approved in Tank Truck Rentals v. Commr. of Internal Revenue 356 U.S. at p. 36; 2 L.ed.2d. 567 note 8. Moreover, in both Warne's case (supra) and Von Glehn's case (supra) the penalties imposed were ultimately imposed by consent and upon the basis that all imputations as to moral culpability were withdrawn. So in the present case, I do not consider the fact that some of the fines did not result in convictions or did not involve any admission as to guilt detracts from the fact that the sums were paid by way of penalty. In effect, payment of the infringement notices involved consent at the least to the payment of a penalty.

A further distinction could be drawn between these offences in which the taxpayer was made directly liable to the penalty and those in which liability was imposed on employees or sub-contractors. In terms of the policy of the law the evil to be averted is the same and the legislative sanction is equally frustrated by the taxpayer paying the fines and penalties and then claiming the deductions. The United States cases to which I have referred provide examples of penalties imposed and paid in the same way, which were in turn denied deductibility. Pressure from unions is, for this purpose, irrelevant.

Finally, as to the various distinctions suggested, I would reject as irrelevant any analysis of these offences on the basis that some of the statutory provisions indicated that no criminal liability was to be imposed. Even if that were so, the policy of the law is directed not only to penalties which may be imposed as a result of direct criminal proceedings but also by way of civil or other proceedings for the recovery of a penalty, as long as the offence is designed to protect the public or a significant part of it. Again Warne's case (supra) and Von Glehn's case (supra) were both cases where the legislation provided for the recovery of the penalties by civil, not criminal, proceedings and the American cases to which I have referred all point to the same conclusion. The public is intended to be protected and the penalties ought not to be the subject of any deduction.

I should end by referring to the nature of the penalties in fact imposed in the present case. Even if I were to accept the proposition that some distinction should be drawn in the manner I have just discussed, there is little evidence to suggest that the offences committed were not committed deliberately or negligently or at least in circumstances in which one could clearly reach the conclusion that they were inadvertent. It would be almost impossible to ascertain whether the fines and penalties in the present

ATC 4480

case were inadvertent or not, so that, unless the rule were restricted to offences involving mens rea, an inquiry as to which offences were deliberate and which were inadvertent would be impracticable not only for the Court but also for those obliged to administer the Act. A moment's thought will indicate that a large number of the offences must have been committed deliberately by the taxpayer or more likely by an employee or a contractor in the course of its business. Many parking offences are obviously deliberate unless they arise out of overstaying time at a meter or because of some misunderstanding of road signs. Many of the other offences, such as speeding and excessive weight offences, would also involve a degree of deliberation. I am not impressed by the suggestion that all these offences were considered unavoidable by executives of the company. Finally, I consider it significant that the chief executive of the Armoured Cars Division had given instructions that ``it would be necessary for the safety and protection of the public and the safety of drivers'' that the taxpayer's vehicles should infringe certain parking regulations, particularly where collections or deliveries of money were made to banks and other premises. No doubt this is a matter of safety practice and the risk of armed hold-ups is all too obvious to those who sit in this Court, but taking the law into its own hands and consciously deciding that ``No Standing'' area regulations should be ignored appears to indicate that in this case the taxpayer was deliberately taking a risk and that in those circumstances the deduction of fines and penalties should not be countenanced. If the regulations impose a burden to the company or if they think that the public are at risk if collections and deliveries are not made in that way, there surely must be arguments available to the company to persuade those responsible for the regulations that exemptions should be given to the company, perhaps by the granting of special permits, as frequently happens in other areas of the law. If the company has such a strong case in terms of public protection, then I cannot believe that some appropriate scheme could not be devised. As for the present offences, some arise out of a clear disregard for the law and for the rest I cannot be satisfied that they were inadvertent.

However, for the reasons already given I consider none of the deductions should be permitted. This appeal must be dismissed with costs to be taxed and paid by the appellant.

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