Reardon v Federal Commissioner of Taxation

[2013] HCATrans 130

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(Judgment by: Bell, Keane JJ) Court:

Judge:
Bell, Keane JJ

Judgment date: 6 June 2013

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Judgment by:
Bell, Keane JJ

TRANSCRIPT OF PROCEEDINGS

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR P.G. BICKFORD, for the applicant in each matter. (instructed by Wonderley & Hall Solicitors)

MR D.M.J. BENNETT, QC: If the Court pleases, I appear with my learned friend, MR R.M. DERRINGTON, SC, for the respondent in each matter. (instructed by Australian Taxation Office Legal Services Branch)

BELL J : Yes, Mr Jackson.

MR JACKSON : Your Honours, this case, in our submission, concerns ultimately the effect of the 2011 amendments to the income tax laws insofar as they related to directors' liability for unpaid company taxation liabilities. The issue, your Honours, is one of importance and of some general application, and could I give your Honours a reference to page 59 of the application book and footnote 43.

BELL J : Yes.

MR JACKSON : Your Honours, I need to go, if I may, to the terms of the several pieces of legislation involved. May I commence by saying that being a director of a company carries with it a liability to pay some amounts which the company should have but has not paid to the Commissioner of Taxation. The liability was created relevantly in respect of the period prior to 1 July 2010 by Division 9 of Part 6 of the Income Tax Assessment Act which, in the book of applicants' authorities, your Honours will find behind tab 11.

Your Honours will see that section 222AOC(1) refers to non-compliance with section 222AOB and, your Honours, that provision obliges the directors of a company to cause it to comply with its taxation obligations or take one of the other courses referred to in that provision.

Section 222AOC(1) then creates in each director a liability to pay what the company should have paid and the liability is expressed to be "by way of penalty". Whilst the amounts are expressed to be payable, that concept was itself subject to the restraints set out in section 222AOE and your Honours will see that there were two elements to those restraints. One was the requirement to give a notice and the second was the requirement of its contents as to time and mode of compliance.

Your Honours, notice could be given by post, 222AOF(1). Now, your Honours, in a decision of the New South Wales Court of Appeal of five judges in Soong v Commissioner of Taxation 80 NSWLR 226 - I do not think I need to take your Honours to the detail of it - it was held, we would submit, not especially surprisingly, that when the post was used then the notice was prima facie given when it would have been received in the ordinary course of post. In the present case, the forms of notice that were given required compliance within 14 days from the actual date of the letter. That was 27 April 2010, so that no complying notice had been given.

Your Honours, that was the position as at 1 July 2010 when Part 6 of that Act was repealed and there were then replacement provisions and transitional provisions. The replacement provisions, your Honours, are in section 269-20 and 25 and they are behind, your Honours, tab 13 in the materials which your Honours will have.

BELL J : Yes.

MR JACKSON : You will see that section 269-20 is the provision which creates the new liability to a penalty. Then your Honours will see that it makes the penalty "due and payable at the end of the due day" - that is subsection (2). But, your Honours, one sees again that under the new provisions there again were requirements for a written notice and the expiration of time after it. Now it was to be "21 days" - that is 269-25(1). Now, no doubt as a kind of quid pro quo, if I could put it that way, for the extension of time to 21 days, one sees section 269-25(4).

Now, your Honours, a question arose of course in relation to the position of cases like this where the due day was before the new Act came into force on 1 July 2010. That was provided for by transitional provisions which are items that your Honours will see on the penultimate page of that tab. You will see, your Honours, in item 64 it made it apparent that the new provisions of Division 269 were to apply to an amount payable before as well as after the commencement time which was 1 July.

Item 65(1) made it apparent, your Honours, that there was not a new liability arising under the new provisions, as did 65(2). But then what one sees is that item 65(3) made it clear that 65(4) was to apply to those cases. That meant, your Honours, that it is said:

Division 269 . . . has effect, from the commencement time, as if the penalty were payable under Subdivision 269-B -

Your Honours, that meant that the requirements of 269-25(1) for notice of 21 days had to be complied with in cases like this.

BELL J : So in a case like this, notwithstanding that the penalty notice under the former regime had been served and taking into account the provisions of the validating legislation to get over the Soong decision were engaged, one was in a situation where a valid notice had been served and the period had lapsed by the date on which the new legislation came into effect, but on an argument respecting the construction of item 4, it was necessary for the Commissioner to serve another notice in order to comply. That is the question.

MR JACKSON : Yes.

BELL J : The matter I am raising with you, Mr Jackson, is some might think there was some force to the analysis of Justice McMurdo respecting the improbability of the construction for which you contend.

MR JACKSON : Well, your Honour, could I just say this. In relation to item 65 what one sees is that - item 64 makes it clear that the new Act applies. Item 65(4) makes it clear that 269, apart from a presently irrelevant provision, does apply. The effect of the decision in Soong, for example, was that at the time when this Act came into force there was not then any valid notice that had been given, so the result was if a notice were to be given it had to be given under the new Act and, your Honours, that had not taken place at all, had never taken place.

The result was that the proceedings which were commenced on 12 August 2010 were in a position that, to put it shortly, the notice under the old provisions was not valid, the new provisions applied but no notice had been given under them. Your Honours, that is the situation that took us then to the new Act - to the 2011 provisions. May I come to those now, your Honour?

KEANE J : Mr Jackson, does it matter that item 64 refers to an amount payable by a company rather than an amount payable by the director?

MR JACKSON : Well, your Honour, what it seems to be saying is that Division 269 applies in relation to an amount payable by a company. Now, that seems to be an identification - it really seems to be saying in a way the fact that the previous provisions are no longer in effect does not mean that the company's obligation is gone. Now, that is the company and then one comes to no doubling up of penalties in - - -

KEANE J : Sure. So it does not matter that the company is gone, but for the purposes of section 222AOC, is item 64 speaking to the liability that is created by that provision?

MR JACKSON : Well, item 64 is saying, I suppose to put it shortly, there were amounts payable by a company before 1 July 2010. Now, in respect of those items, treat them as now governed by Division 269.

KEANE J : Do you accept that Justice McMurdo was right in what he said at page 36, paragraph [56], that there was an amount payable by the directors as at 27 April 2010 and the only question then is as to its recoverability?

MR JACKSON : Yes, your Honour, yes.

KEANE J : Then, to the extent that there was an invalidity with the notice - - -

MR JACKSON : It remained payable.

KEANE J : - - - which nevertheless remained payable but not recoverable because of the invalid notice and then the 2011 amendment had the effect of validating the notice.

MR JACKSON : But no more. That is where the issue ultimately arises, your Honour.

KEANE J : But if the notice is validated and the absence of a valid notice is the only step required to make the penalty recoverable, why is it not recoverable?

MR JACKSON : Well, your Honour, could I just indicate why and that is because if one looks at the Act to which I have just been taking your Honour, the 2010 Act and the item 65, it did more than simply say a liability continues, to put it shortly. What it said was, in item 65(4), that Division 269 has effect as if the penalty were payable under 269-B. Your Honours, it created, in effect, a liability to - I am sorry, "created" is perhaps the wrong word. The liability was thereafter a liability which derived from for the future 65(4) and, your Honours, the nature of that liability was that it was one which required for enforcement there to be a notice given under the new provision and the time provided for by that new provision to elapse and, your Honours, the amending provision in 2011 did not touch that question.

KEANE J : So that we should read items 64 and 65 as declaring a moratorium in respect of liabilities that had accrued - liability to pay, albeit not yet recoverable - we should construe this as creating a moratorium in relation to those?

MR JACKSON : Well, your Honour, "moratorium" is, with respect, a somewhat emotive term in a way, but the point I am seeking to make about is that - - -

KEANE J : That is the effect of the submission, is it not, a moratorium that can only be relieved upon the giving of a new notice.

MR JACKSON : Well, your Honour, all it says is that under the previous Act there had to be given a notice and the notice had the - notice which gave you 14 days for there to be a form of compliance with it. It is saying now that in circumstances where that has not occurred because there was no valid notice given, the new Act applies. The new Act requires that you give a notice and 21 days.

BELL J : The new notice states conditions for compliance that cannot be complied with, the point that Justice McMurdo makes in application book 37, paragraph [61] respecting the consequences of the interpretation of the item for which you contend.

MR JACKSON : Your Honour was talking about paragraph [61], I think?

BELL J : Yes, it is application book 37.

MR JACKSON : Well, your Honour, to put it shortly, the position was, hardly surprisingly, that you had an Act which provided for some conditions on recoverability, the conditions were not complied with when a new Act came into force, different conditions apply; that is all. But the other feature about it, your Honours, is that 65(4) treats the penalty as one payable under the new Act and that is when goes to the 2011 measures which your Honours will see behind tab 14. The point that one sees from the 2011 Act, Schedule 7, item 1, it:

applies if the Commissioner gave (or purported to give) a notice under -

the repealed 222AOE and that notice is to be treated as if it had been given when posted. Now, your Honours, if there had been no 2010 Act, then item (1), (2) of the 2011 Act might well be effective to change the effect of the decision in Soong but it seems to leave out of account the existence of item 65(3) and 65(4) of Schedule 1 to the 2010 Act which of course provided specifically that Division 269 was to apply to cases such as this as if the penalty were payable under those provisions which included 269-25(1). Your Honours will see, if one goes to 265-25(1), the words "under this section" which appear in it.

Your Honours, there is nothing, in our submission, in Schedule 7 which deals with section 269-25 and that provision, if one reads it with item 65(3) and (4), is really in the clearest terms and, we would submit, obviously operates to the exclusion of section 8 of the Acts Interpretation Act. What we would submit, if I could endeavour to summarise the position, is that the notice purportedly given on 27 April 2010 was invalid. As at 1 July 2010, the position was that there was a liability for the amount of the penalty but proceedings for it could not be instituted at that point.

As from 1 July, Division 9 was repealed. There was specific provision made by the transitional provisions to deal with these penalties, 63 and 65(3) and (4), and they were to be treated as if payable under the new provisions and that meant that the new notice had to be given, your Honours.

Your Honours, we would submit the 2011 provision of item 7 did not cure the problem, it dealt with part of it only. It provides that the purported notice was to be treated as if given on the date of postage. That is expressed to be for the purposes of the former provision. The problem was that the former provision did not have any relevant application.

Your Honours, this is not a case where one can read into the 2011 provisions something which cures what might have been done. The provision terms of Schedule 7 simply do not go far enough, and it is not a case where one can readily assume what the further provision should have been. The Court has often said - and perhaps if I just give one reference without reading it - Commissioner of Taxation v Consolidated Media Holdings 87 ALJR 107, paragraph [39], that a legislative history and extrinsic materials cannot displace the meaning of the statutory text. In short, your Honours, that provision could have gone further but it did not. Your Honours, those are our submissions.

BELL J : Thank you. We do not need to hear from you, Mr Bennett.

In these matters we are of the view that the conclusion reached by the Court of Appeal is not attended by sufficient doubt. For that reason special leave is refused with costs.

The Court will adjourn to reconstitute.

AT 11.06 AM THE MATTERS WERE CONCLUDED