Singleton v Commissioner of Taxation [2007] NSWSC 1327

Reported Decision : 67 ATR 648

New South Wales Supreme Court

CITATION : Singleton v Commissioner of Taxation [2007] NSWSC 1327

HEARING DATE(S) : 19 November 2007

JUDGMENT DATE : 19 November 2007

JURISDICTION : Equity

JUDGMENT OF : Austin J

DECISION : Judgment for Commissioner of Taxation under s 588FGA.

CATCHWORDS : CORPORATIONS - Commissioner of Taxation's action against directors under s 588FGA - directors resident overseas - whether service overseas should be confirmed - whether court should enter judgment against defendants in their absence

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 588FF, 588FGA Uniform Civil Procedure Rules, r 11.2, 11.4, 11.5

CASES CITED : Woodgate v Network Associated International BV [2007] NSWSC 1260

Neil Singleton in his capacity as liquidator of Niederer Drilling Pty Ltd (in liq) (P1) Niederer Drilling Pty Ltd (in liq) (P2) PARTIES : Commissioner of Taxation (D/A) Debra Johanna Maria Kosovich (R1) John William Kosovich (R2)

FILE NUMBER(S) : SC 6173/05

COUNSEL : Mr S Golledge (D/A)

SOLICITORS : Jones King Lawyers (P) ATO Legal Services Branch (D/A)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

AUSTIN J

MONDAY 19 NOVEMBER 2007

6173/05 NEIL SINGLETON & ANOR V DEPUTY COMMISSIONER OF TAXATION JUDGMENT (Ex tempore; revised 20 November 2007) 1 HIS HONOUR: By an amended interlocutory process filed 27 July 2007, the Commissioner of Taxation applies under s 588FGA of the Corporations Act 2001 (Cth), for judgment against Debra and John Kosovich, the respondents, in respect of a judgment made against the Commissioner on 19 March 2007, under s 588FF, in the sum of $74,455. 2 I am satisfied that the ingredients of liability imposed on directors by s 588FGA(4) have been established by the Commissioner against Mr and Mrs Kosovich. 3 There is evidence before me that the payments in respect of which s 588FF orders were made against the Commissioner were payments under the Pay-As-You-Go withholding provisions of Subdivision 16-B of Schedule 1 to the Taxation Administration Act 1953 (Cth). There is evidence that, at the relevant time, that is to say, the time when the payments were made, the two respondents, Mr and Mrs Kosovich, were directors of the company concerned. 4 In those circumstances, s 588FGA(2) imposes statutory liability on the directors to indemnify the Commissioner in respect of the Commissioner's loss or damage resulting from the orders against him. That loss or damage is quantified by the evidence at $70,323.75 and, consequently, the Commissioner has established an entitlement to indemnity for that sum. 5 Section 588FGA(4) authorises the Court to order the directors to pay that amount to the Commissioner in the proceedings in which the order was made against the Commissioner, namely, these proceedings. 6 There is a complication arising out of the fact that Mr and Mrs Kosovich reside in New Zealand. The evidence establishes that they have been served in that country. 7 If the Commissioner's application had been by way of originating process, then Rule 11.2 of the UCPR would apply. It would allow an originating process to be served in the manner specified by Schedule 6. On the assumption that Rule 11.2 is applicable, counsel for the Commissioner made submissions to the effect that this case falls within para (a) and also para (f) of Schedule 6. 8 Para (a) allows an originating process to be served outside Australia in a case where the proceedings are founded on a cause of action arising in New South Wales. It seems to me that the cause of action reflected in the amended interlocutory process is a cause of action arising in New South Wales for the purposes of the Schedule. The cause of action arises out of an order made in this Court under s 588FF. The payments which were the subject of the 588FF proceedings were payments made in New South Wales by a company whose registered office was in Forbes in New South Wales and whose principal place of business was in Parkes. In those circumstances, if the question had been where the cause of action under s 588FF arose, then, on the application of case law summarised by Barrett J in Woodgate v Network Associated International BV [2007] NSWSC 1260, the Court would conclude that a cause of action under s 588FF arose in this State. 9 The cause of action in the Commissioner is under s 588FGA but it arises directly out of the Court's judgment in the s 588FF proceedings in circumstances where, as I have said, the directors are resident abroad but every other aspect of the matter that is material connects the cause of action to New South Wales. 10 Counsel for the Commissioner also relies on subpara (f), which allows an originating process to be served outside Australia if the proceedings are for contribution or indemnity in respect of a liability enforceable by proceedings in the Court. The liability in question in this case is liability on the judgment under s 588FF and is clearly enforceable by proceedings in this Court, because the judgment is a judgment of this Court. The proceedings brought by the Commissioner by the amended interlocutory process are proceedings for indemnity, because the directors' liability is described as an indemnity liability in s 588FGA(2). 11 Therefore, in my view, if the proceedings had been brought by the Commissioner by originating process, then the originating process could have been served in New Zealand under subpara (a) and under subpara (f) of Schedule 6. 12 There is an argument, not explored today, that might support the conclusion that the amended interlocutory process, asserting (in an original way) the Commissioner's claim for indemnity under s 588FGA(4) is properly to be characterised as an originating process for the purposes of the UCPR. I leave that issue for another day. 13 Proceeding on the assumption that Rule 11.2 does not directly apply, counsel for the Commissioner invited me to make orders under Rule 11.5. That provision says that service outside Australia of a document other than an originating process is valid only if effected pursuant to leave of the Supreme Court or as subsequently confirmed by the Supreme Court. In the present case, the amended interlocutory process and supporting documents have already been served, so the issue is whether the Court should confirm that service. 14 As I have said, if the application had been by originating process, service would have been permitted under Rule 11.2; then Rule 11.4 would have applied to provide that, the originating process having been served on the defendant outside Australia, the Court could grant leave for the plaintiff to proceed in the absence of an appearance. I am persuaded that if those provisions were applicable, I would have granted leave and would accordingly have proceeded to hear and determine the case and enter judgment for the Commissioner. That being so, my view is that the Commissioner should not be deprived of the benefit of a judgment in circumstances where the indemnity claim is made, as s 588FGA(4) itself contemplates, by interlocutory process in the proceedings in which the s 588FF orders were made. The Commissioner has followed the dictates of subs (4) and, in my view, the Court should exercise its discretion to confirm service outside the jurisdiction under Rule 11.5 after considering, as I have, what the position would have been if the claim had been pursued by originating process. 15 All other discretionary considerations point to the making of an order under Rule 11.5. It follows that I shall make an order under that Rule and make the orders sought by the Commissioner in the short minutes of order supplied by counsel.