New South Wales Supreme Court CITATION : Deputy Commissioner of Taxation v Ikin & Anor [2006] NSWSC 86 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 15 February 2006 JURISDICTION : Civil JUDGMENT OF : McClellan CJatCL EX TEMPORE JUDGMENT DATE : 02/15/2006 DECISION : 1. Judgment for the defendants; 2. Plaintiff must pay the defendants' costs. CATCHWORDS : INCOME TAX DEBT - claim for money owed to the Commissiner of Taxation - whether the liability should have been remitted - timing of service of Director's Penalty Notices - whether company was placed in administration within 14 days - rebuttal of presumption notice arrived in the ordinary time for mail to arrive Acts Interpretation Act 1901 LEGISLATION CITED : Acts Interpretation Act 1954 (Qld) Corporations Act 2001 (Cth) Income-Tax Assessment Act 1936 (Cth) CASES CITED : Fancourt & Anor v Mercantile Credits Limited (1983) 154 CLR 87 Ketrim Pty Ltd v A S & L Pty Ltd (2004) 214 ALR 206 Deputy Commissioner of Taxation (Pltf) PARTIES : Peter Ikin (1D) Rochelle Ikin (2D) FILE NUMBER(S) : SC 11749/04 COUNSEL : M Cleary (Pltf) P D Rodionoff (Def) Australian Taxation Office, SOLICITORS : Legal Services Branch (Pltfs) HAL Lawyers (Def) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION McCLELLAN CJ at CL WEDNESDAY 15 FEBRUARY 2006 11749/04 DEPUTY COMMISSIONER OF TAXATION v IKIN & ANOR JUDGMENT 1 HIS HONOUR: This is a claim by the Deputy Commissioner of Taxation for a total sum of $235,512.80. That sum represents tax withheld by Secure Scaffolding Pty Ltd and is a sum which the defendants admit was owed by the company to the Commissioner. 2 Secure Scaffolding Pty Ltd carried on business in the construction industry as a scaffolder. The evidence indicates that although the business had a significant turnover, a downturn in the building industry led to the company having financial difficulties and, as often happens, those difficulties emerged in problems in meeting the liabilities which the company owed for taxation. 3 The defendants were the two directors of the company which was operating effectively as a family business. The evidence indicates that there were a series of negotiations between the Commissioner and the company and its directors in relation to unpaid liabilities. Those negotiations did not bring a resolution of the matter and the Commissioner ultimately served notices by way of penalty notices for amounts withheld pursuant to s 222AOE of the Income-Tax Assessment Act 1936 (Cth). The notices attached a schedule of amounts withheld. 4 There was an error in that schedule, namely that the amount included for 1 December 2001 to 31 December 2001 is acknowledged to have been paid. The other six amounts said to be payable are accepted as being correct. 5 The notice bears the date 11 July 2002. Evidence has been given in an affidavit dated 13 July 2002 and signed by Judith Anderson, who signed the Australian Tax Officer's Notice of 11 July 2002 as "Judy Anderson", an officer of the plaintiff, that she created the relevant Director's Penalty Notices, signed them and placed them into envelopes. She wrote the addresses on the envelopes and affixed a stamp. 6 She says at approximately 5:40 p.m. on 11 July 2002 [the affidavit says "2005" which I assume is an error] she placed the two envelopes containing the Director Penalty Notices in an Australia Post mailbox located at the corner of Swanson Street and Alexandra Avenue, Geelong in Victoria. The defendants' address shown in the notice is 43 Cressnock Road, Ryhope, NSW 2283. In fact the correct address should have been given as 43 Cessnock Road but at the end of the day nothing turns on that error. 7 For the purpose of these proceedings the defendants concede that four business days is a reasonable time for mail posted in Geelong, Victoria prior to the last collection time on the day of posting to be received in the Toronto/Cessnock region of New South Wales. 8 However, they do not concede that Australia Post consistently or ordinarily achieves delivery of mail into the Toronto/Cessnock region four business days after posting in Geelong and says four business days was not achieved in the case currently before the court. 9 11 July 2002 was a Thursday. Accordingly, allowing for the weekend, four business days would extend to the Wednesday, 17 July. Both of the defendants have given evidence. Mrs Rochelle Ikin says that she cannot remember the day upon which she retrieved the relevant letters from the letterbox at the defendants' home. She does remember that it was a date in July and because of her usual work routine on a Tuesday, remembers that she did not receive the documents on a Tuesday. She says that after she retrieved the letters from the mailbox, she entered the house and opened the envelopes. She was not sure what the documents were about but as they looked important she says she telephoned her husband Peter Ikin that same day. 10 She gave evidence that she described the documents to him but cannot remember whether or not she faxed copies to him. She remembers giving Peter Ikin the original documents that night and that he took them to work with him. Mrs Rochelle Ikin says that it is the family's practice to collect the mail each day when they are at home. Either she or her husband generally collects the mail. If she has collected the mail she gives it to her husband when he returns home. She is also aware that her husband checks the letterbox when he arrives home from work. She gave evidence that she was sure that the letterbox was checked for mail every working day in July prior to 23 July 2002. 11 Mr Peter Ikin also gave evidence. He does remember that it was on 18 July that his wife telephoned him in relation to mail that had been received from the tax office. Mr Peter Ikin understood his wife to be concerned about the notices. He says that his wife faxed him a copy of a notice but he cannot now find the faxed copy. He says that when he returned home that night his wife gave him the original notices which he took to work. 12 Mr Peter Ikin also described the fact that he lives with his family on a 5 acre property away from the township of Toronto with the letterbox next to the driveway near the road. There is a bolt on the letterbox and when the mailman delivers the mail he leaves the letterbox unbolted. He says it is the family's practice to collect the mail each day and his wife often collects it. However, he says it is always his practice to check the letterbox when he arrives home from work to see if the mail has been collected. 13 He says that he is certain that until 23 July the mail was collected from the letterbox on each working day. He says that he is certain the mail had been collected on 17 July but that the notices were not in the mail that day. He says that there are a number of reasons why he particularly remembers that it was on 18 July that his wife telephoned him after opening the letters containing the notices. 14 The specific matters which he recalls are: Firstly, the notices said that he had to do certain things within 14 days so he took note of the date the notices were received. Secondly, Thursdays were paydays for all staff employed by the company, Secure Scaffolding Pty Ltd, and he remembers the phone call from his wife being received on payday. Thirdly, when the 14th day after receipt was close to an end he arranged to get professional advice about appointing an administrator. Fourthly, the company appointed an administrator on 1 August 2002 because it was the 14th day after receipt of the notice and the last day on which an administrator could be appointed if he was to comply with the notices. 15 I accept without question the evidence of both Mr and Mrs Ikin. They were impressive witnesses not only for their responses to the questions they were asked but also because of the way in which they have conducted their affairs. There is no suggestion that they have failed to file tax returns as required nor disclose other than the appropriate income and moneys payable to the plaintiff. 16 Mrs Rochelle Ikin was frank in identifying that she could not recall the date upon which she received and opened the letters which, as was pointed out by counsel for the plaintiff, potentially weakened the defendants' position. However, it was plain to me that she was not prepared to give evidence other than of that which she had a clear and accurate recollection. 17 I have indicated I also accept the evidence of Mr Peter Ikin and in particular the reasons which he gives for recalling the precise date upon which the letters were received. They are to my mind completely convincing. 18 It would be extraordinary for someone who was conducting a significant business at a time of financial stress, upon receiving a notice demanding a payment in the order of $300,000, not to take careful steps to peruse the notice and carefully identify the steps which needed to be taken to diminish or ultimately, if it came to this, avoid the liability. 19 It is necessary for me to explain the position in relation to the notice. Pursuant to the relevant provisions of the Statute, the notice is required to set out for the recipient the steps which can be taken so that the director's liability will be remitted. There are four alternatives: Firstly, the company may pay the unpaid amount which obviously discharges the liability. Secondly, if an agreement is in force pursuant to s 222ALA of the Income-Tax Assessment Act 1936 the penalty notice will be remitted. Thirdly, and of significance in the present case, is that remission will occur if the company is under administration within the meaning of the Corporations Act 2001 (Cth) or, fourthly, the company is being wound up. 20 The notice provides, although not in the clearest language, that if any one of the four steps are taken within a period of 14 days after the notice has been given to the recipient, the liability will be remitted. 21 What the notice clearly intends to say in a manner consistent with the statutory provision is that if, within 14 days from the date the notice was given, one of the four steps have been taken the liability will be remitted. 22 The parties in these proceedings have been able to agree on most of the relevant factual matters. I am also grateful to counsel for distilling the issues into two matters. The first of those matters is, when having regard to the relevant statutory provisions, which I will come to in a moment, the service of the notice was effected upon the defendants. The second issue is, the effect, if any, on the validity of the notice of the fact it contained an error in relation to the December 2001 liability. 23 As it happens it is only necessary for me to resolve the first issue. In relation to that matter, the parties accept that the date for service of the notices will be that determined after application of s 29 of the Acts Interpretation Act 1901. Section 28A of the Act provides the manner for service of the relevant document and includes sending it by prepaid post to the address at the place of residence or business of the person last known to the person serving the document. 24 The Commissioner also has the benefit of s 222AOF(1) of the Income-Tax Assessment Act 1935 which is to similar effect. However, s 222AOF(1) provides that the Commissioner may utilise the address provided in the Australian Securities and Investments Commission's search with respect to the name and address of the person to be served. I understand that the spelling error in the road address of the defendants derives from the ASIC documents. 25 Being permitted by statute to serve the notice by post the question becomes, when will service be effected? In this respect whether the notices were served on the 17th or the 18th of July is critical. The defendants took the step of putting Secure Scaffolding Pty Ltd into administration on 1 August. If the notices were served on 17 July they would have been one day out of time and the section would not operate to remit their personal liability for the penalties. 26 Accordingly, it is necessary to look at s 29 of the Acts Interpretation Act 1901. Section 29 (1) provides as follows: "Where an Act authorises or requires any document to be served by post, whether the expression "serve" or the expression "give" or "send" or any other expression is used, then unless the contrary intention appears the service shall be deemed to be effected by properly addressing prepaying and posting the document as a letter, and unless the contrary is proved to have been effected at the time at which the letter would be delivered in the ordinary course of post". 27 Notwithstanding the able submissions of counsel for the Commissioner, in my view the application of that section to the circumstance of this case is clear. 28 The plaintiff, having proved that the notices were put into the appropriate post box on 11 July and that in the ordinary course of post would have been expected to arrive within four working days, service would be deemed to be effected on the 17th unless the contrary is proved. 29 Having regard to the evidence of Mr and Mrs Ikin I am left in no doubt that the notices were received on the 18th, that of course is one day more than the evidence indicates the notices would have been received in the ordinary course, but as I am satisfied that the time at which the notices were received was the 18th and it is that date upon which service was effected. 30 In that event the plaintiff's claim must fail. Counsel referred me to a decision of the High Court which was suggested as supporting the Commissioner's position: see Fancourt & Anor v Mercantile Credits Limited (1983) 154 CLR 87. However, I do not understand that case to be relevant to the resolution of the present problem. In Fancourt the relevant provisions of the Acts Interpretation Act 1954 (Qld) were examined in relation to the service of the notice pursuant to Hire Purchase Legislation. However, the factual circumstances were that the relevant notice had been posted but there was no evidence of its receipt nor was there evidence that it had never been received by the letter being returned to the sender or in some other way. There was merely a factual gap. 31 That case is quite different to the present case where I am satisfied of the date upon which the notices were received and, accordingly, the presumption which otherwise would be made has been effectively rebutted. 32 In Ketrim Pty Ltd v A S & L Pty Ltd (2004) 214 ALR 206, Barrett J considered a similar issue in relation to notices with respect to winding up of corporations. His Honour was able to find the actual date on which service by post was effected and, that date having been proved, held "There is no room for the operation of the rule in s 29 of the Acts Interpretation Act based on the 'ordinary course of post'". 33 I infer that his Honour was indicating that the presumption in s 29 was, as the section provides, displaced if the date of the actual service of the notice had been proved. I respectfully agree with the approach which his Honour adopted which, it seems to me, must be the approach to be adopted in the present case. 34 As I have indicated the finding which I have made is sufficient to dispose of these proceedings in favour of the defendants. It is unnecessary for me to address the second issue. 35 Accordingly, there will be judgment for the defendants and the plaintiff must pay the defendants' costs. There will be orders accordingly. ********** 03/03/2006 - solicitors around the wrong way - Paragraph(s) none 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.