Reported Decision : 59 NSWLR 139 New South Wales Court of Appeal CITATION : Moss v. Deputy Commissioner of Taxation [2003] NSWCA 341 HEARING DATE(S) : 16 October 2003 JUDGMENT DATE : 24 November 2003 JUDGMENT OF : Sheller JA at 1; Hodgson JA at 2; Davies AJA at 30 DECISION : Appeal dismissed with costs. CATCHWORDS : TAXES AND DUTIES - Income tax - Collection and recovery of tax - Collection by instalments - Obligation of company directors - To remit deductions from wages of employees by due date - Alternative of making an agreement with the Commissioner - Requirements for such an agreement - Penalties. LEGISLATION CITED : Income Tax Assessment Act 1936 ss.222ALA, 222AOA, 222AOB, 222AOC, 222AOE, 222AOG, 222AQA Deputy Commissioner of Taxation v. Gillis [2003] NSWCA 340 CASES CITED : GFT Australia Pty. Ltd. v. Collector of Customs (1995) 128 ALR 219 Suttor v. Gundowda Pty. Ltd. (1950) 81 CLR 418 PARTIES : Alan Moss - appellant Deputy Commissioner of Taxation - respondent FILE NUMBER(S) : CA 41135/02 COUNSEL : Mr. P. Taylor SC with Mr. I. Mescher for appellant Mr. M. Aldridge SC with Mr. P. Rodionoff for respondent SOLICITORS : The Argyle Partnership, Sydney for appellant Australian Government Solicitor, Sydney for respondent LOWER COURT District Court JURISDICTION : LOWER COURT DC695/00 FILE NUMBER(S) : LOWER COURT Gibson DCJ JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41135/02 DC 695/00 SHELLER JA HODGSON JA DAVIES AJA Monday 24 November 2003 MOSS V. DEPUTY COMMISSIONER OF TAXATION Judgment 1 SHELLER JA: I agree with Hodgson JA. 2 HODGSON JA: On 11 November 2002, in proceedings brought by the respondent against David Roger Ash, Jane Ash and Alan Paul Moss, Gibson DCJ gave judgment for the respondent in the sum of $286,858.59, and ordered the defendants to pay the respondent's costs. Alan Paul Moss appeals to this Court from that decision. 3 The case turns on a number of provisions of the Income Tax Assessment Act 1936 (the Act) as in force at the relevant time, namely ss.222ALA, 222AOA, 222AOB, 222AOC, 222AOE, 222AOG and 222AQA. Those provisions WEre in the following terms: 222ALA. COMMISSIONER MAY MAKE AGREEMENT (1) The Commissioner may make with a person a written agreement under which the person is to pay specified amounts, on specified days, for the purpose of discharging one or more specified liabilities of the person, each of which is: (a) a liability under a remittance provision; or (b) a liability to pay an estimate. (2) An agreement may contain other provisions. (3) An agreement may also provide that, if the person contravenes specified provisions of it, so much of the total of the specified amounts as remains unpaid becomes due and payable on the day of the contravention. If an agreement so provides, the specified provisions are called "special conditions". (4) The amounts specified in an agreement are due and payable on the specified days. (5) However, if: (a) a specified amount is not paid on or before the specified day; or (b) the person contravenes a special condition; so much of the total of the specified amounts as remains unpaid: (c) becomes due and payable on that day, or on the day of the contravention, as the case may be; and (d) is called "the balance payable under the agreement." (6) Subsections (4) and (5) have effect despite Divisions 1AAA, 3B and 4 and the other provisions of this Division, but are to be ignored: (a) in calculating a penalty under any of those Divisions; and (b) for the purposes of this Division (except this section) and Division 9. (7) The Commissioner may make with a person a written agreement varying or terminating an agreement with the person that is in force under this section. (8) Nothing in Division 9 obliges the Commissioner to enter into an agreement with a company. … 222AOA. APPLICATION (1) This Subdivision applies if a company incorporated under the Corporations Law of a State or Territory has made, for the purposes of Division lAA, 2, 3A, 3B or 4, one or more deductions having a particular due date. (2) The earliest day on which the company made for the purposes of that Division a deduction that has that due date is called the first deduction day. (3) That due date is called the due date. 222AOB. DIRECTORS TO CAUSE COMPANY TO REMIT OR TO GO INTO VOLUNTARY ADMINISTRATION OR LIQUIDATION (1) The persons who are directors of the company from time to time on or after the first deduction day must cause the company to do at least one of the following on or before the due date: (a) comply with Division IAAA, 3B or 4, as the case may be, in relation to each deduction: (i) that the company has made for the purposes of Division 1 AAA, 3B or 4; and (ii) whose due date is the same as the due date; (b) make an agreement with the Commissioner under section 222ALA in relation to the company's liability under a remittance provision in respect of such deductions; (c) appoint an administrator of the company under section 436A of the Corporations Law; (d) begin to be wound up within the meaning of that Law. (2) This section is complied with when: (a) the company complies as mentioned in paragraph (1)(a): or (b) the company makes an agreement as mentioned in paragraph (I)(b): or (c) an administrator of the company is appointed under section 436,. 436B or 436C of the Corporations Law; or (d) the company begins to be wound up within the meaning of that Law; whichever first happens, even if the directors did not cause the event to happen. (3) If this section is not complied with on or before the due date, the persons who are directors of the company from time to time after the due date continue to be under the obligation imposed by subsection (1) until this section is complied with. … 222AOC. PENALTY FOR DIRECTORS IN OFFICE ON OR BEFORE DUE DATE If section 222AOB is not complied with on or before the due date, each person who was a director of the company at any time during the period beginning on the first deduction day and ending on the due date is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company's liability under a remittance provision in respect of deductions: (a) that the company has made for the purposes of Division 1AAA, 3B or 4, as the case may be; and (b) whose due date is the same as the due date. … 222AOE. COMMISSIONER MUST GIVE 14 DAYS' NOTICE BEFORE RECOVERING PENALTY The Commissioner is not entitled to recover from a person a penalty payable under this Subdivision until the end of 14 days after the Commissioner gives to the person a notice that: (a) sets out details of the unpaid amount of the liability referred to in section 222AOC; and (b) states that the person is liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount, but that the penalty will be remitted if, at the end of 14 days after the notice is given: (i) the liability has been discharged; or (ii) an agreement relating to the liability is in force under section 222ALA; or (iii) the company is under administration within the meaning of the Corporations Law; or (iv) the company is being wound up. … 222AOG. REMISSION OF PENALTY IF SECTION 222AOB COMPLIED WITH BEFORE NOTICE PERIOD ENDS If: (a) a penalty is payable by a person under this Subdivision; and (b) section 222AOB is complied with at a time when the Commissioner has not yet given the person a notice under section 222AOE, or within 14 days after the Commissioner gives the person such a notice; the penalty is remitted because of this section. … 222AQA. DIRECTORS TO ENSURE THAT COMPANY COMPLIES WITH PAYMENT AGREEMENT (1) If a company incorporated under the Corporations Law of a State or Territory makes an agreement with the Commissioner under section 222ALA of this Act, the persons who are directors of the company from time to time must cause the company to comply with the agreement. (2) If the company contravenes the agreement by failing to pay a specified amount on or before the specified day, or by contravening a special condition, each person who was a director of the company at any time during the period beginning on the day when the agreement was made and ending on the day of the contravention is liable to pay to the Commissioner, by way of penalty, an amount equal to the balance payable under the agreement. 4 In June 1999, the appellant was a director of Terra Services Pty. Limited (the company). 5 On 21 June 1999, the company sent a facsimile to the Australian Taxation Office in the following terms: Please find attached the following information in respect of the Group Tax liability. A Balance Sheet as at 31st May 1999 prepared from our normal Management Accounts. Details of the Insurance claims in respect of damage at our Bombala construction site, due to damage to a retaining wall by an excavator and a retaining wall failure during construction (different wall) following the severe storm in 1998, are as follows: Contract Works Claim. Insurer: HIH Wintherthur (formerly FAI) Ref: 1326373 Value of Claim: $90,000. Expected Date of Settlement: 4 to 6 weeks from today's date Professional Indemnity Claim Insurer: QBE Insurance Ref: AO1328632 Value of Claim: $275,000. Expected Date of Settlement: 8 to 10 weeks from today's date In regard to payment of the outstanding Group Tax we propose the following schedule. 1. As mentioned in previous correspondence we will assign the proceeds from the insurance claims to the tax office. 2. In the interim we will in addition to making the normal payments when they become due, add $15,000 to each monthly remittance until such time as the debt is cleared. We trust the above meets with your approval. This facsimile attached a balance sheet as at 31 May 1999 showing group tax liability of $379,222.00. 6 On 22 June 1999, the Australian Taxation Office responded with the following letter to the company: GROUP TAX Balance owing as at 22 June 1999 $396,691.09 Your request of 21 June 1999 has been considered and action to recover the overdue group tax will be deferred if payment is made as follows:- $15000.00 is to be paid by 7 July 1999 $15000.00 is to be paid by 21 August 1999 $15000.00 is to be paid by 21 September 1999 Payments should be forwarded to - Dianne Eckmann Australian Taxation Office Withholding Taxes Team PO Box 422 Parramatta NSW 2123 Alternatively payments may be hand delivered to the 5th floor Enquiries Section of this office, provided that it is maked (sic) to the above mentioned officer's attention. This arrangement is subject to the payment of all current months prior to or on the due date. If you are unable to make a payment, please contact us immediately since default on payment may result in the commencement of legal action without further notice. You are reminded that where tax instalment deductions are not paid by the due date, the company is liable for penalties. For deductions due before 1 July 1998 the penalties include two components: (a) A relevant penalty of up to 20% of any deductions not paid by the due date. (b) Additional amounts for late payment at the rate of 16% per annum on both the principal amount and the relevant penalty. From 1 July 1998 this rate has been reduced to 13.5% per annum. For deductions due after 1 July 1998 a penalty amount at the rate of 13.5% per annum will accrue on any deductions that remain outstanding. If you have any queries as to the above please contact Dianne Eckmann on (02) 935 43548. 7 On the same day, the Australian Taxation Office served the appellant with a notice under s.222AOE of the Act, in the following terms: Income Tax Assessment Act 1936 NOTICE OF DIRECTOR'S LIABILITY TO PAY A PENALTY TO THE COMMISSIONER OF TAXATION TAX INSTALMENT DEDUCTIONS TO: Mr Alan Paul Moss Our Reference: PAR l MOD 86402 / 17584716/3 …. In exercise of the powers and functions conferred on me as a Deputy Commissioner of Taxation by delegation from the Commissioner of Taxation under the provisions of the Taxation Administration Act 1953, I give you notice under section 222AOE of the Income Tax Assessment Act 1936 (the Act) that you, as a director of the company, are liable to pay the Commissioner by way of penalty an amount equal to the unpaid amount of each liability of TERRA SERVICES PTY LIMITED, ACN 003569168, under section 220AAM of the Act in respect of deductions made by the company for the purposes of Division 2 of Part VI of the Act, details of which are set out in the following table:- TABLE Column 1 Column 2 Column 3 Column 4 Particular deduction Due date Amount of Unpaid amount of Period deductions company's Liability 1 September 1998 to 30 September 1998 7 October 1998 $38056.25 $38056.25 1 October 1998 to 31 October 1998 7 November 1998 $20665.78 $20665.78 1 November 1998 to 30 November 1998 7 December 1998 $32583.75 $32583.75 1 December 1998 to 31 December 1998 7 January 1999 $53413.25 $53413.25 1 January 1999 to 31 January 1999 7 February 1999 $34340.52 $34340.52 1 February 1999 to 28 February 1999 7 March 1999 $41711.10 $41711.10 1 March 1999 to 31 March 1999 7 April 1999 $77730.56 $77730.56 1 April 1999 to 30 April 1999 7 May 1999 $43141.71 $43141.71 1 May 1999 to 31 May 1999 7 June 1999 $37578.72 $37578.72 Total amount you are liable to pay by way of penalty $379,221.64 The penalty in respect of any unpaid amount will be remitted if, at the end of 14 days* after this notice is given to you:- (a) the company's liability in respect of that unpaid amount has been discharged; or (b) an agreement relating to the liability is in force under Section 222ALA of the Act; or (c) the company is under administration within the meaning of the Corporations Law; or (d) the company is being wound up. Dated this Twenty-Second day of June 1999 8 This was served along with a letter from the Australian Taxation Office to the appellant in the following terms: PENALTY NOTICE: TAX INSTALMENT DEDUCTIONS Please find enclosed a notice of your liability to pay a penalty equal to the amount(s) the company that you are or were a director of failed to pay to the Commissioner. You automatically became liable to the penalty when the company failed to remit the amount(s) set out in the notice by the due date(s). Action to recover the penalty from you will be taken without further notice if, after fourteen days from the date the notice is given to you:- (a) the company's liability has not been discharged; or (b) an agreement under section 222ALA to pay the liability is not in force; or (c) the company is not under administration within the meaning of the Corporations Law; or (d) the company is not being wound up. The penalty will be remitted if any one of these options is adopted within 14 days from the date the notice was given to you. You should keep in mind that you will continue to be liable to a penalty if any one of the options has not been adopted at the end of 14 days after you are given the notice (that is, any agreement would need to be signed before the expiration of the 14 days). You are entitled to be indemnified by the company, or to obtain a contribution from anyone else who the Commissioner could have sued, for any payment you make by way of penalty. A company's liability and the liabilities of directors for penalties are parallel liabilities. When an amount is paid to discharge one of the liabilities, each of the other liabilities is discharged by the same amount. The Taxpayers' Charter outlines your rights under the law in connection with your dealings with the Tax Office and the service and other standards you can expect. A copy of the Taxpayers' Charter can be obtained from your nearest Tax Office or by visiting our Internet site www.ato.gov.au. If you have any queries in relation to this matter, or require clarification of the attached notice, please contact Dianne Echmann on (02) 9354 3548. 9 It appears that subsequently, amounts in respect of the company's liability for September 1998, October 1998 and November 1998 were paid, and $968.82 was paid in respect of the company's liability for December 1998. 10 In these proceedings, the respondent claimed the balance of $286,947.04 against the appellant and two other directors of the company, pursuant to s.222AOC. As noted earlier, the primary judge gave judgment for a little less than that amount against all defendants. The only issue now relevant arises in this way. 11 The appellant defended the case inter alia on the basis that, the letter of 22 June 1999 from the Australian Taxation Office to the company constituted an agreement under s.222ALA of the Act, so that thereby s.222AOB(1)(a) was complied with, with the result that s.222AOG remitted any liability of directors under s.222AOC. 12 The primary judge rejected that defence, and the appellant's appeal is now on the sole ground that the primary judge was in error in finding that the letter of 22 June 1999 did not constitute an agreement under s.222ALA. 13 The respondent has put on a Notice of Contention, raising the following ground: 1. That the letter dated 22 June 1999 from the respondent to Terra Services Pty. Ltd, even if found to be a section 222ALA agreement, did not extend to, or cover, the penalties the subject of the action. 14 The appellant's written submissions (with one addition made at the hearing) were as follows: 1. Gibson DCJ accepted that 1.1 the 22 June 1999 letter {Blue 56} was a written agreement: Red 250; 32W 1.2 it specified payment amounts: Red 23C 1.3 it specified payment days: Red 23C 1.4 the liability arose under a remittance provision (s.222AFB) 2. Gibson DCJ appears to have held that the agreement did not comply with section 222ALA only because 2.1 the agreement did not relate to "specified liabilities": Red 260; 33R 2.2 it was not for the purpose of discharging those liabilities: Red 26T; 33M. 3. The Judge was wrong not to find that the subject matter of the agreement was "one or more specified liabilities" for the purpose of s.222ALA - because 3.1 the 22 June 1999 agreement stated that (a) it related to "Group Tax" (b) there was a balance owing by the company (c) the amount owing was "$396,691" (d) the amount was "overdue". 3.2 the requirement to "specify" "one or more" liabilities is satisfied by that information - because it does identify the nature and total of the remittance liability and consequently, permits all its component causes of action to be identified. 3.3 the alternative expression "one or more" specified liabilities, implicitly permits the Commissioner to specify a "liability" either by reference to its nature and total, or by reference to the individual causes of action comprising the total liability amount - as Davies J held in ILA v Commissioner of Taxation (2002 42 ACSR 561 at [41 ] & [42] - see also A v B [1969] NZLR 534 at 536 (persons may be "specified" without being named); Drummoyne Municipal Council v Australian Broadcasting Commission (1990) 21 NSWLR 135 at 137B & 138B-D (per Gleeson CJ). 3.4 according to general principles of contractual interpretation, even though certainty of subject matter is required, the precise meaning of the described/specified subject matter can always be determined by resort to extrinsic evidence, and the same approach ought to be taken to the interpretation of s 222ALA 3.5 s 222ALA confers a discretionary power on the Commissioner, for the purpose of securing the actual payment of tax liabilities, the scope of such a discretionary power should not be more narrowly construed than the language of the section plainly demands. 4. The judge was wrong to hold that the payments required by the agreement were not "for the purpose of discharging" specified liabilities - because 4.1 the context of both s 222ALA, and other ITAA provisions, indicates that the expression "discharge" is used in a sense that contemplates pro tanto "discharge" of a liability to the extent of a payment amount: see s 222ALB(1) & (3), 222AOH, 222APG, 222AQB(2) 4.2 in particular, section 222ALA(1) contemplates that the Commissioner may make an agreement for the payment of separate amounts towards the discharge of "one" liability - and even if it is for an amount less than a taxpayer's total liability. It would frustrate, for no sensible reason, the flexibility of the power conferred by the subsection, if the Commissioner was precluded from making agreements unless each contemplated payment was itself sufficient to wholly discharge a particular liability. 4.3 the Commissioner was obliged to apply any amounts paid under the agreement "towards discharging" the taxpayers liabilities - and was permitted to apply them to "any one or more of those liabilities": see s 222ALB 4.4 against this background it necessarily follows that the payments contemplated by the agreement were to be made "for the purpose of discharging" the liability and there is no reason to interpret the expression "for the purpose of discharging" as if it was intended to mean "which will have the effect of wholly discharging". 4.5 clearly, the purpose of the payments contemplated by the agreement was to "pro tanto" discharge the group tax liability 4.6 once that purpose is accepted as the purpose of the payments required by the agreement, no other purpose, and in particular no purpose of wholly discharging a liability, was required by section 222ALA(1). 15 In oral submissions, Mr. Taylor SC for the appellant submitted that s.222ALA used the language of contract, and should not be interpreted as requiring greater specificity than is required for a contract; and that was met by the document in this case. 16 Next, Mr. Taylor submitted that s.222ALA can be seen as having deliberately selected the criterion of purpose rather than effect; and this could be satisfied by a document requiring pro tanto discharge of the relevant liability, not necessarily full discharge. Mr. Taylor noted that at least two other provisions of the Act, namely ss.222ALB and 222AOH, used the terms "discharge" in a context that included pro tanto discharge. He submitted that the requirement of purpose was apt to make it clear that the Commissioner could not bargain for any other purpose, such as additional payments. Furthermore, he submitted, s.222ALA clearly contemplated the Commissioner having flexibility in making arrangements, including the ability to impose conditions, which would be inconsistent with an interpretation requiring that the agreement itself provide for discharge of the liabilities. He submitted that the section was intended to operate when the taxpayer was in default and could not pay, making it appropriate that the Commissioner have a wide discretion as to how to achieve a desirable recovery. Accordingly, this flexibility should not be restricted by a narrow construction of the "purpose" requirement. 17 Mr. Taylor noted that it had been common ground that the letter of 22 June 1999 constituted an agreement in writing: and he submitted that this was in accordance with the proposition that there is an agreement in writing whenever the parties have agreed that the document be an authentic or conclusive record of the bargain: see the article "Contracts in Writing" by H.K. Lucke (1996) 40 ALJ 265, GFT Australia Pty. Limited v. Collector of Customs (1995) 128 ALR 219 at 233-4. DECISION 18 There was no dispute that, in respect of each of the amounts in the s.222AOE notice, and each of the due dates in that notice, the company had made the deductions referred to in s.222AOA(1)(a), but did not at any relevant time do any of the things specified in pars.(a) to (d) of s.222AOB(1) (apart of course from the partial payments referred to earlier), unless (b) was satisfied by virtue of the letter from the Australian Taxation Office to the company dated 22 June 1999. 19 In order that s.222AOB(1)(b) be satisfied in relation to any or all of those amounts, what was required was "an agreement with the Commissioner under s.222ALA in relation to the company's liability under a remittance provision in respect of such deductions". Under s.222ALA(1), the agreement must provide for payments "for the purpose of discharging one or more specified liabilities of the person, each of which is … a liability under a remittance provision". 20 Reading that with s.222AOB(1)(b), it is plain in my opinion that, for s.222AOB(1)(b) to be satisfied in relation to any or all of the amounts in respect of which the company had not otherwise complied with its obligations, an agreement under s.222ALA would have to be one under which the company "is to pay specified amounts, on specified days, for the purpose of discharging" that liability or those liabilities, being a liability or liabilities specified in the agreement. 21 There is an anterior question whether there is a written agreement at all in this case, and if so whether it was entered into within the time required by s.222AOG. Mr. Taylor conceded that the letter of 22 June 1999 did not amount to an acceptance of an offer made in the company's document of 21 June 1999, because the terms of the two documents differed. However, he submitted that the terms of the letter of 22 June 1999 were accepted, at the latest, upon the making of the first payment of $15,000.00 by 7 July 1999; and he submitted that no point was taken below that, if such payment was made after 6 July 1999, it would be outside the fourteen day period specified in s.222AOG. Mr. Taylor submitted that it would be too late now to advance any such submission. 22 I accept the submission that a document can be a "written agreement" within s.222ALA, even if the document is not signed by both parties. I think the better view is that, if it is shown that both parties have agreed that a document is to be an authentic and conclusive record of their bargain, that is sufficient. It appears to have been accepted below that this document was such a document, and I will proceed on that basis. 23 The next question is, what liability or liabilities is or are specified in the alleged agreement? There is reference in the document to a balance of group tax owing as at 22 June 1999 of $396,691.09, and, although this figure does not correspond exactly with the bottom line claimed in the s.222AOE notice, I will accept that it does sufficiently identify liabilities of the company so as to make them specified liabilities: cf. Deputy Commissioner of Taxation v. Gillis [2003] NSWCA 340. 24 The next question is, whether the document is a written agreement under which the company "is to pay specified amounts, on specified days, for the purpose of discharging" those liabilities totalling $396,691.09. 25 In my opinion, an agreement does not amount to an agreement under which a taxpayer is to pay specified amounts, on specified days, for the purpose of discharging one or more specified liabilities, unless the agreement makes provision for the discharging of the whole of such liability or liabilities. In my opinion the effect of a s.222ALA agreement is to substitute, as the due dates for various payments, the dates specified in the agreement in place of the dates on which the amounts were previously made due and payable. I think this is confirmed by the consideration that the making of a s.222ALA agreement in relation to any liabilities fulfils the requirements of s.222AOB and discharges the obligations of the directors of a company under that section, so that the directors cannot thereafter be made liable for a penalty under s.222AOC in respect of that liability. Where a s.222ALA agreement is entered into, the directors may become personally liable for amounts payable under that agreement by virtue of s.222AQA. In my opinion, that consideration supports the proposition that the regime under the s.222ALA agreement displaces the previous payment regime, and also that s.222ALA requires that the agreement provide for the discharge of the whole of the relevant liability or liabilities. 26 However, even if that were not correct, this case can be decided on a narrower ground. In my opinion, even if payments under an agreement could be for the purpose of discharging a liability or liabilities, within s.222ALA(1), even though the agreement does not provide for the discharge of the whole of the liability or liabilities, the agreement in this case does not provide for payments having that purpose. The purpose of the payments as manifested by this document is that of obtaining a brief moratorium, which is granted conditionally upon the company making three relatively small monthly payments on account. Although in a sense it might be said that the purpose of all such dealings between the Commissioner and a taxpaying company is to achieve a discharge of the company's liabilities, the relevant purpose under s.222ALA is the purpose of the payment of specified amounts on specified days; and the only substantial purpose of those payments in this case is to obtain a moratorium, albeit at the same time making a small reduction in the overall liability. For that reason, in my opinion, the written agreement in this case is not an agreement within s.222ALA. 27 There is a further reason which leads me to the view that this could not be an agreement under s.222ALA. In my opinion, a s.222ALA agreement must by its terms require payment of amounts on specified days, not merely indicate a preparedness of the Commissioner to defer recovery action if such payments are made. In my opinion, the document of 22 June imposes no obligation on the company to make the three small payments. It merely indicates that, if such payments are made, recovery action will be deferred. I think the language of s.222ALA(1), referring to amounts which the taxpayer "is to pay", the provisions of s.222ALA(4) that the amounts are due and payable on the specified days, the reference to compliance with the agreement in s.222AQA(1) and to contravention of the agreement by failing to pay a specified amount in s.222AQA(2), confirm that the agreement must be one which itself requires the payments. I do not think that is satisfied by a mere practical necessity of making the payments in order to defer recovery action. 28 Mr. Taylor submitted that this last point was not taken below and indeed not taken by the respondent on the appeal. I do not think it is a point to which the principles of Suttor v. Gundowda Pty. Limited (1950) 81 CLR 418 would apply; but in any event it is not my sole ground for dismissing the appeal. 29 For those reasons, in my opinion the appeal should be dismissed with costs. 30 DAVIES AJA: The ground of appeal relied upon is that the taxpayer company entered into an agreement with the Commissioner under s.222ALA thus, by reason of s.222AOG, causing a remission of the penalty imposed on directors by s.222AOC. Section 222ALA provides, inter alia:- 222ALA. COMMISSIONER MAY MAKE AGREEMENT (1) The Commissioner may make with a person a written agreement under which the person is to pay specified amounts, on specified days, for the purpose of discharging one or more specified liabilities of the person, each of which is: (a) a liability under a remittance provision; or (b) a liability to pay an estimate. (2) An agreement may contain other provisions. (3) An agreement may also provide that, if the person contravenes specified provisions of it, so much of the total of the specified amounts as remains unpaid becomes due and payable on the day of the contravention. If an agreement so provides, the specified provisions are called special conditions. (4) The amounts specified in an agreement are due and payable on the specified days. (5) However, if: (a) specified amount is not paid on or before the specified day; or (b) the person contravenes a special condition; so much of the total of the specified amounts as remains unpaid: (c) becomes due and payable on that day, or on the day of the contravention, as the case may be; and (d) is called the balance payable under the agreement. 31 In my opinion, an agreement under s.222ALA supersedes the provisions of s.221F(5) of the ITAA Act which make deductions by group employers payable to the Commissioner no later than the twenty first day of the month of which the deductions are made or not later than the seventh day of the month succeeding that month, the date depending upon the time when the deductions are made. That is because s.222ALA gives statutory effect to the agreement. As the section provides that the specified amounts to be paid to discharge the specified liabilities will be "due and payable on the specified days", it necessarily implies that the liabilities to be discharged will be due and payable in accordance with the specified payment regime. Section 222AOG provides that the penalty is remitted when the agreement is entered into. 32 It is not necessary, for the purposes of the appeal, to determine whether or not an agreement under s.222ALA totally supersedes the original liability for Group Tax. However, the terms of s.222ALA, which provide that, if there is a breach of the agreement, the unpaid balance of the specified amounts becomes payable, suggest that the agreement prevails over the original obligations. So also do the terms of s.222AQA(2), which provide that, on default, there is imposed on the directors a penalty equal to the balance payable under the agreement. 33 These factors support an interpretation of s.222ALA contrary to that put by senior counsel for the appellant, Mr. P. Taylor SC, with him Mr. I. Mescher of counsel. In s.222ALA(1), the words "discharging one or more specified liabilities" refer to a total discharge of one or more liabilities. The agreement must provide a payment regime which, if complied with, will extinguish the taxpayer's specified debt. 34 The Australian Taxation Office sent to the taxpayer company a letter of 22 June 1999 which read, inter alia:- GROUP TAX: Balance owing as at 22 June 1999 $396,691.09 Your request of 21 June 1999 has been considered and action to recover the overdue group tax will be deferred if payment is made as follows:- $15000 is to be paid by 7 July 1999 $15000 is to be paid by 21 August 1999 $15000 is to be paid by 21 September 1999 Payments should be forwarded to: Dianne Eckmann Australian Taxation Office Withholding Taxes Team PO Box 422 Parramatta NSW 2123 Alternatively payments may be hand delivered to the 5th floor Enquiries Section of this office, provided that it is marked [sic] to the above-mentioned officer's attention. This arrangement is subject to the payment of all current months prior to or on the due date. 35 Whether or not the letter constituted an agreement, which is debatable, it did not provide for the discharge of specified liabilities by specified instalments on specified dates. The letter went no further than to say that recovery proceedings would be deferred if three sums of $15,000 were paid on the dates which the letter specified. As the trial Judge noted, none of the company's liabilities were precisely $15,000 or a composite of that sum. An essential element of s.222ALA, an agreement of a contractual nature providing a specified regime for the discharge of specified liabilities, was absent. 36 A further letter was sent by the Australian Taxation Office on 20 October 1999. This letter similarly did not constitute an agreement under s.222ALA, as indeed it specifically noted at its conclusion. 37 Accordingly, the ground of appeal based upon s.222ALA of the ITAA Act fails. 38 I agree with the orders proposed by Hodgson JA. ********** Last Modified: 11/24/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.