Supreme Court New South Wales Medium Neutral Citation: Deputy Commissioner of Taxation v Arora [2017] NSWSC 1016 Hearing dates: 28 July 2017 Date of orders: 04 August 2017 Decision date: 04 August 2017 Jurisdiction: Common Law Before: Davies J Decision: (1) Judgment for the Plaintiff in the sum of $1,894,929.53. (2) The Defendant is to pay the Plaintiff's costs. Catchwords: TAXES AND DUTIES – proceedings for recovery against Defendant under Taxation Administration Act 1953 (Cth) – defendant's companies failed to pay withholding tax and superannuation guarantee charges – director penalty notices issued to defendant – liability not in issue – whether defences of illness or taking all reasonable steps are available under s 269-35 TAA – misconceived defence that liquidators may have sufficient funds to pay companies' tax liabilities – judgment in favour of plaintiff CIVIL PROCEDURE – adjournment – application by defendant shortly before hearing - defendant's companies in liquidation – whether defendant's company's liabilities may be paid by other contingencies – defendant would be entitled to refund even if contingencies eventuated – no basis for adjournment Legislation Cited: Civil Procedure Act 2005 (NSW) Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Superannuation Guarantee (Administration) Act 1992 (Cth) Taxation Administration Act 1953 (Cth) Cases Cited: Canty v Deputy Commissioner of Taxation (2005) 63 NSWLR 152; [2005] NSWCA 84 Deputy Commissioner of Taxation v George (2002) 55 NSWLR 511; [2002] NSWCA 336 Deputy Commissioner of Taxation of the Commonwealth of Australia v Woodhams (2000) 199 CLR 370; [2000] HCA 10 Re Scobie & Anor; ex parte Commissioner of Taxation (1995) 59 FCR 177 Category: Principal judgment Parties: Deputy Commissioner of Taxation (Plaintiff) Ajay Arora (Defendant) Representation: Counsel: J Mitchell (Plaintiff) I Archibald (Defendant) Solicitors: ATO, Review & Dispute Resolution (Plaintiff) Capellia Legal (Defendant) File Number(s): 2016/113211 Judgment 1. By Amended Statement of Claim filed 27 October 2016 the Deputy Commissioner of Taxation seeks judgment against the Defendant principally for various penalties due and payable to the DCT pursuant to s 269-20 of the Taxation Administration Act 1953 (Cth) (the TAA). At the date of the hearing (28 July 2017) the amounts claimed with interest totalled $1,892,842.59. 2. The Defendant in his Amended Defence admits the claims pleaded but relies in relation to the whole of the claim on a defence pursuant to s 269-35 in sch 1 to the TAA as well as another matter, said to be a defence, to which I will come presently. Background 1. On 25 February 2010 Arora Markets Pty Ltd was registered as an Australian Proprietary Company. The Defendant was a director of Arora Markets from 25 February 2010 to 17 November 2014. On 14 October 2015 this Court made an order winding up Arora Markets and appointing a liquidator. 2. On 26 September 2012 Arora International Markets Pty Ltd was registered as an Australian Proprietary Company. The Defendant was a director of Arora International from 12 October 2012. On 22 December 2014 an administrator was appointed to the company. On 9 April 2015 a liquidator was appointed by creditors to commence a voluntary winding up that company. Taxation liabilities (1) Arora Markets 1. From 1 June 2013 to 31 October 2014 Arora Markets withheld various amounts from salary, wages and other payments totalling $674,959. The amounts withheld were reported by Arora Markets to the DCT through the lodgement of various Business Activity Statements and Instalment Activity Statements. Those withholdings were ultimately reduced to $610,966.85. 2. Arora Markets was obliged under sub-division 16-B Sch 1 of the TAA to remit those amounts withheld to the DCT by their respective due days. Arora Markets failed to do so and its liability remains. 3. By amended assessments dated 14 May 2014, 15 May 2014, 29 July 2014, 3 August 2015, 5 August 2015 and 10 August 2015 Arora Markets was assessed for superannuation guarantee charges (SGCs) and shortfalls totalling $214,986.71 for various quarterly periods between 1 April 2012 and 30 September 2014. 4. Pursuant to ss 16 and 46 of the Superannuation Guarantee (Administration) Act 1992 (Cth) (the SGAA) Arora Markets was obliged to pay the assessed amounts of SGCs for the relevant quarters by their respective due dates. Arora Markets failed to do so and its liability remains wholly undischarged. 5. Since the filing of the Statement of Claim payments totalling $77,755.96 have been received to reduce the SGCs to $137,230.75. (2) Aurora International 1. In the period commencing 1 June 2013 and ending 30 June 2014 Arora International withheld various amounts from salary, wages and other payments totalling $649,717. The amounts withheld were reported by Arora International to the DCT through the lodgement of various Business Activity Statements and Instalment Activity Statements. 2. Ultimately, the withholdings were reduced to $492,226.86 by reason of payments being made. 3. Arora International was obliged under Sub-division 16-B Sch 1 of the TAA to remit the amounts withheld to the DCT by their respective due days. Arora International failed to do so and its liability remains undischarged. 4. By amended assessments dated 23 September 2014, 29 September 2014, 7 October 2014 and 6 February 2015 Arora International was assessed for SGCs and shortfalls totalling $510,507.99 for various quarterly periods between 1 October 2012 and 30 June 2014. 5. Pursuant to ss 16 and 46 of the SGAA, Arora International was obliged to pay the assessed amounts of SGCs for the relevant quarters by their respective due dates. Arora International failed to do so and its liability remains undischarged. (3) The Defendant 1. Division 269 Sch 1 of the TAA imposes a duty on directors to ensure a company meets its obligations, or promptly goes into administration or liquidation. The failure to comply is sanctioned by penalties imposed on directors personally. When this occurs, the director's penalty operates in parallel with the existing liability owed by the company, so that a reduction of one liability reduces the parallel liability to the same extent. 2. The Defendant was a director of Arora Markets from 25 February 2010 to 17 November 2014 and a director of Arora International from 12 October 2012 until a liquidator was appointed on 9 April 2015. The DCT's case is that the Defendant as a director of those companies was under an obligation to cause those companies to comply with their obligations to pay the withholding tax and the SGCs. He remained under that obligation at the end of each due day because the companies had not complied with their obligations to pay those monies to the DCT, an administrator had not been appointed nor had the companies begun to be wound up. 3. Before bringing proceedings to recover a director penalty, the DCT must give a Director Penalty Notice under s 269-25 Sch 1 of the TAA. Director Penalty Notices were given to the Defendant on 11 June 2014, 13 June 2014, 25 March 2015, 14 May 2015, 9 June 2015 and 28 January 2016. 4. In addition, the DCT claims an amount on a Running Balance Account in respect of primary tax debts owed by the Defendant under the Business Activity Statements provisions as defined in s 995-1(1) of the Income Tax Assessment Act 1997 (Cth). Legislative provisions 1. Sub-division 269-A of the TAA relevantly provides: 269-5 Object of Division The object of this Division is to ensure that a company either: (a) meets its obligations under: (i) Subdivision 16-B (obligation to pay withheld amounts to the Commissioner); and (ii) Division 268 (estimates of PAYG withholding liabilities and superannuation guarantee charge); and (iii) Part 3 of the Superannuation Guarantee (Administration) Act 1992 (obligation to pay superannuation guarantee charge); or (b) goes promptly into voluntary administration under the Corporations Act 2001 or into liquidation. Note: The directors' duties are enforced by penalties on the directors. A penalty recovered under this Division is applied towards meeting the company's obligation. 269-10 Scope of Division (1) This Division applies as set out in the following table: Obligations that directors must cause company to comply with Item Column 1 Column 2 This Division applies if, on a particular day (the initial day), a company is a company registered under the Corporations Act 2001, and on the initial day … and the company is obliged to pay to the Commissioner on or before a particular day (the due day)... 1 the company withholds an amount under Division 12 that amount in accordance with Subdivision 16-B. 2 the company receives an alienated personal services payment an amount in respect of that alienated personal services payment in accordance with Division 13 and Subdivision 16-B. 3 the company provides a non-cash benefit an amount in respect of that benefit in accordance with Subdivision 16-B. 4 the company is given notice of an estimate under Division 268 the amount of the estimate. 5 a quarter ends superannuation guarantee charge for the quarter in accordance with the Superannuation Guarantee Administration) Act 1992. Note: In a case covered by item 2, 3 or 4 of the table, the due day is the same as the initial day. (2) This Division applies in relation to an amount that the company purports to withhold under Division 12, but is not required to withhold, as if the company were required to withhold the amount. Superannuation guarantee charge (3) For the purposes of this Division, the company's superannuation guarantee charge for a quarter under the Superannuation Guarantee (Administration) Act 1992 is treated as being payable on the day by which the company must lodge a superannuation guarantee statement for the quarter under section 33 of that Act, even if the charge is not assessed under that Act on or before that day. 269-15 Directors' obligations Directors' obligations (1) The directors (within the meaning of the Corporations Act 2001) of the company (from time to time) on or after the initial day must cause the company to comply with its obligation. (2) The directors of the company (from time to time) continue to be under their obligation until: (a) the company complies with its obligation; or (b) an administrator of the company is appointed under section 436A, 436B or 436C of the Corporations Act 2001; or (c) the company begins to be wound up (within the meaning of that Act). Instalment arrangements (3) The Commissioner must not commence, or take a procedural step as a party to, proceedings to enforce an obligation, or to recover a penalty, of a director under this Division if an arrangement that covers the company's obligation is in force under section 255-15 (Commissioner's power to permit payments by instalments). Note 1: The arrangement may also cover other obligations of the company. Note 2: Subsection (3) does not prevent the Commissioner from giving a director a notice about a penalty under section 269-25. 269-20 Penalty Penalty for director on or before due day (1) You are liable to pay to the Commissioner a penalty if: (a) at the end of the due day, the directors of the company are still under an obligation under section 269-15; and (b) you were under that obligation at or before that time (because you were a director). Note: Paragraph (l)(b) applies even if you stopped being a director before the end of the due day: see subsection 269-15(2). (2) The penalty is due and payable at the end of the due day. Note: The Commissioner must not commence proceedings to recover the penalty until the end of 21 days after the Commissioner gives you notice of the penalty under section 269-25. Penalty for new director (3) You are also liable to pay to the Commissioner a penalty if: (a) after the due day, you became a director of the company and began to be under an obligation under section 269-15; and (b) 30 days later, you are still under that obligation. (4) The penalty is due and payable at the end of that 30th day. Note: The Commissioner must not commence proceedings to recover the penalty until the end of 21 days after the Commissioner gives you notice of the penalty under section 269-25. Amount of penalty (5) The amount of a penalty under this section is equal to the unpaid amount of the company's liability under its obligation. Note 1: See section 269-40 for the effect on your penalty of the company discharging its obligation, or of another director paying his or her penalty. 269-25 Notice Commissioner must give notice of penalty (1) The Commissioner must not commence proceedings to recover from you a penalty payable under this Subdivision until the end of 21 days after the Commissioner gives you a written notice under this section. Content of notice (2) The notice must: (a) set out what the Commissioner thinks is the unpaid amount of the company's liability under its obligation; and (b) state that you are liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount because of an obligation you have or had under this Division; and (c) explain the main circumstances in which the penalty will be remitted. (3) To avoid doubt, a single notice may relate to 2 or more penalties, but must comply with subsection (2) in relation to each of them. When notice is given (4) Despite section 29 of the Acts Interpretation Act 1901, a notice under subsection (1) is taken to be given at the time the Commissioner leaves or posts it. Note 1: Section 28A of the Acts Interpretation Act 1901 may be relevant to giving a notice under subsection (1). Note 2: Section 269-50 of this Act is also relevant to giving a notice under subsection (1). 269-35 Defence Illness (1) You are not liable to a penalty under this Division if, because of illness or for some other good reason, it would have been unreasonable to expect you to take part, and you did not take part, in the management of the company at any time when: (a) you were a director of the company; and (b) the directors were under the relevant obligations under subsection 269-15(1). All reasonable steps (2) You are not liable to a penalty under this Division if: (a) you took all reasonable steps to ensure that one of the following happened: (i) the directors caused the company to comply with its obligation; (ii) the directors caused an administrator of the company to be appointed under section 436A, 436B or 436C of the Corporations Act 2001; (iii) the directors caused the company to begin to be wound up (within the meaning of that Act); or (b) there were no reasonable steps you could have taken to ensure that any of those things happened. (3) In determining what are reasonable steps for the purposes of subsection (2), have regard to: (a) when, and for how long, you were a director and took part in the management of the company; and (b) all other relevant circumstances. Superannuation guarantee charge - reasonably arguable position (3A) You are not liable to a penalty under this Division to the extent that the penalty resulted from the company treating the Superannuation Guarantee (Administration) Act 1992 as applying to a matter or identical matters in a particular way that was reasonably arguable, if the company took reasonable care in connection with applying that Act to the matter or matters. When you can rely on this section (4) For the purposes of: (a) proceedings in a court to recover from you a penalty payable under this Division; or (b) proceedings in a court against you in relation to a right referred to in paragraph 269-45(2)(b) (directors jointly and severally liable as guarantors); subsection (1) or (2) of this section does not apply unless you prove the matters mentioned in that subsection. (4A) For the purpose of the Commissioner recovering from you a penalty payable under this Division (other than as mentioned in subsection (4)), subsection (1) or (2) does not apply unless: (a) you provide information to the Commissioner during the period of 60 days starting on the day the Commissioner: (i) in the case of the Commissioner recovering the penalty under section 260-5 (Commissioner may collect amounts from third party) - gives you a notice under subsection 260-5(6) in relation to the penalty; or (ii) otherwise - notifies you in writing that he or she has recovered any of the penalty; and (b) the Commissioner is satisfied of the matters mentioned in subsection (1) or (2) of this section on the basis of that information. Power of courts to grant relief (5) Section 1318 of the Corporations Act 2001 does not apply to an obligation or liability of a director under this Division. … Subdivision 269-C- Discharging liabilities Table of sections 269-40 Effect of director paying penalty or company discharging liability 269-45 Directors' rights of indemnity and contribution 269-40 Effect of director paying penalty or company discharging liability Liabilities (1) This section applies to the following liabilities: (a) the liability of the company under its obligation referred to in section 269-10; (b) the liability of each director (or former director) to pay a penalty under this Division in relation to the liability of the company referred to in paragraph (a); (c) a liability under a judgment, to the extent that it is based on a liability referred to in paragraph (a) or (b). Discharging one liability discharges other liabilities (2) If an amount is paid or applied at a particular time towards discharging one of the liabilities, each of the other liabilities in existence at that time is discharged to the extent of the same amount. (3) If, because of section 268-20 (Nature of liability to pay estimate), one of the liabilities is discharged at a particular time to the extent of a particular amount, each of the other liabilities in existence at that time is discharged to the extent of the same amount. (4) This section does not discharge a liability to a greater extent than the amount of the liability. 269-45 Directors' rights of indemnity and contribution (1) This section applies if you pay a penalty under this Division in relation to a liability of the company under an obligation referred to in section 269-10. (2) You have the same rights (whether by way of indemnity, subrogation, contribution or otherwise) against the company or anyone else as if: (a) you made the payment under a guarantee of the liability of the company; and (b) under the guarantee you and every other person who has paid, or from whom the Commissioner is entitled to recover, a penalty under this Division in relation to the company's obligation were jointly and severally liable as guarantors. Legal principles 1. As a result of the failure of the companies to pay the amounts withheld and the SGCs the Defendant became liable to pay to the DCT a penalty of an amount equal to each unpaid amount under s 269-20, Sch 1: Re Scobie & Anor; ex parte Commissioner of Taxation (1995) 59 FCR 177 at 182. This liability is subject to any defences available to the Defendant 2. The Director Penalty Notice does not itself impose a liability or create a right of action but is a requirement before commencing proceedings to recover the penalty: Deputy Commissioner of Taxation of the Commonwealth of Australia v Woodhams (2000) 199 CLR 370; [2000] HCA 10 at [19] and [35]. The liability derives from s 269-20 of the TAA. 3. As noted, the Defendant does not dispute his liability subject to establishing an available defence. Application to adjourn 1. Two days before the appointed hearing date for these proceedings the Defendant by Notice of Motion filed on 26 July 2017 sought that the hearing date be vacated. Although counsel initially said that there were two bases for the application, it became apparent from an affidavit filed in support of the Motion by the Defendant that there was a third basis. 2. The first basis was said to be that Arora Markets and Arora International were in liquidation and the liquidations had not yet been finalised. It was likely or possible, so it was submitted, that there would be funds in the hands of the liquidators in respect of each company which would be able to satisfy the taxation liabilities. 3. The second basis was said to be that in the course of the liquidation it was ascertained that the liquidators or one of them had sold off assets comprising supermarkets. There was some evidence that the buyers of those supermarkets had assumed responsibility for the accrued superannuation entitlements crystallised in the superannuation charge. 4. The third basis arose out of proceedings that had commenced in the Federal Circuit Court against the Defendant by the Shop, Distributive and Allied Employees Association on behalf of their members. This concerned the Defendant's directorship of Arora International. In those proceedings the SDA was seeking, amongst other things, amounts equivalent to the superannuation entitlements of the employees of Arora International. The Defendant submitted that if the SDA was successful in the Federal Circuit Court proceedings then the part of the DCT's claim for the SGCs in respect of Arora International would no longer be necessary. 5. The Defendant submitted that there would be a risk that, if judgment was given against him in the present proceedings in relation to the SGCs, the judgment may turn out to exceed what was really owing because in the proceedings in the Federal Circuit Court the Defendant may be able to establish, perhaps, that the liquidator would have paid the employees' entitlements or some employees may have resigned so that the amount claimed by the DCT in the present proceedings would be more than the correct amount due. 6. I did not consider, for the reasons that follow, that those matters provided any basis for adjourning the present proceedings. As a general answer to the application for an adjournment the position is that, if the sorts of contingencies identified came to pass, it would be open to the Defendant to claim a refund from the DCT and, if satisfactory evidence is provided, such amounts would be refunded. (a) Funds available to the liquidator 1. This argument arises from the second defence made by the Defendant to the whole claim. As will be seen when I discuss the defences raised, that defence is not a defence as such to the claim, and there was no basis for adjourning the proceedings for that purpose. (b) Sale of the supermarkets with superannuation liabilities 1. In relation to the basis concerning the sale by the liquidators of the supermarkets, my attention was drawn to the terms of one contract that the Defendant had come upon. This was a contract between Arora Markets and Dotown Pty Ltd on a date not identified and in a contract signed by the liquidators but not the purchaser. There was in fact no evidence that this contract had been exchanged. For the purpose of considering the adjournment, however, I am prepared to assume that exchange has taken place. 2. Clause 31 of this contract provides: 31 Employees 31.1 Before completion, the purchaser must make an offer of employment to each employee in the business which it wishes to employ, which offer will: 31.1.1 be conditional on and effective from completion; 31. 1.2 be irrevocable before completion; 31.1.3 be on terms (including superannuation) recognising the employee's service with the vendor that are In aggregate no less favourable than the terms and conditions of employment that applied between the vendor and the employee at completion; and 31.1.4 provide that an employee who accepts the offer expressly authorises and directs the vendor on completion to not make any payment to them in respect of accrued employee entitlements, and to transfer the value of employee entitlements to the purchaser. 31.2 The purchaser's offer to each employee will be accompanied by a letter from the vendor confirming that, as a result of acceptance, on completion the employment with the vendor cease by agreement. 31.3 Prior to completion, the purchaser must provide to the vendor. 31.3.1 a list of the transferring employees and full details in writing of their accrued employee entitlements as at completion, and 31.3.2 copies of each of the acceptances of employment signed by the transferring employees. 31.4 The vendor must adjust under clause 18, as regards the employees on the list, an amount equal to: 31.4.1 the value of any long service leave entitlement of each employee, varied by multiplying that value by the figures shown in column 2 of the Long Service Leave Adjustment Table which corresponds to the length of continuous services shown in column 1 of the Long Service Leave Adjustment Table; and 31.4.2 the monetary value of any other accrued employee entitlements as at completion. 31.5 The purchaser must pay to the vendor within seven days of completion, the amount paid under clause 31.3 relating to an employee named on the list who does not commence work with the purchaser on completion. 31.6 The purchaser indemnifies the vendor against any claim by an employee against the vendor for employee entitlements which accrued while the employee was employed by the vendor or arising from the termination of such employment whether under or pursuant to an agreement, legislation, award or in any other way. The maximum amount payable under this indemnity in respect of a particular employee is the amount relating to that employee which was adjusted under clause 31.4. 31.7 From completion, the purchaser will be responsible for and will indemnify the vendor for employee entitlements which accrue to the employees who accept employment with the purchaser. 31.8 The vendor indemnifies the purchaser against any claim by an employee against the purchaser for employee entitlements arising prior to completion which have not been the subject of an adjustment under clause 31.4. 1. Employee entitlements is defined in clause 1.2 as meaning: The entitlements of employees of the business, including wages, holiday pay, sick pay, long service leave, superannuation and entitlements under any legislation, service agreement or other contract. 1. The Defendant argued that if the purchaser under this or any other contract was accepting liability for superannuation entitlements of employees then that would effectively provide a defence to the Defendant in the present claims to the extent of the responsibility taken on by the purchaser. 2. Two things should be said about that. First, the liability that attaches to the Defendant in the present claim is a personal and primary liability brought about by the legislation, the SGC assessments and the Director Penalty Notices. The liability is not a contingent one, that is, contingent on some other body having a parallel liability and not ultimately meeting that liability. Secondly, until such time as the DCT has actually been paid the amounts in the SGCs by the purchaser companies, the Defendant cannot obtain any benefit from the contractual arrangements: s 269-40. 3. The DCT submitted that clause 31.3 contemplated a list of the transferring employees who have employee entitlements. No such list was attached to the contract, nor was it put into evidence. In that way it cannot be known what actual employee entitlements are being taken over by the purchaser under the contractual arrangements. In any event, the DCT acknowledges that if the purchaser pays liabilities that are otherwise sought from the Defendant in this regard the Defendant will obtain the benefit of that payment. (c) Federal Circuit Court proceedings 1. The liability of the Defendant for the SGCs at the present time is not contingent upon payments which might be made by the liquidator in the future or by later demonstrating that personnel changes in relation to employees reduce the company's liability for those payments. The Defendant faintly suggested that, because the proceedings in the Federal Circuit Court commenced in 2015 whereas the present proceedings commenced in 2016, it was appropriate for the Federal Circuit Court proceedings to proceed first. I can see no basis for that. These proceedings were at the date of the adjournment application ready to be heard and had a hearing date appointed. In any event, the Defendant must have been aware of the existence of the other proceedings at the time these proceedings were fixed for hearing by the Registrar on 19 May 2017 without opposition from the Defendant. No explanation has been provided for why an application to adjourn was made so late. Defences 1. The Defendant pleads two defences to each of the four claims. The first is a defence based on s 269-35 of Sch 1 of the Taxation Administration Act 1953 (Cth). The second defence is pleaded in this way: In addition or in the alternative, [the] Defendant believes that at least a part of the claim will be able to be met by the liquidator of Arora Markets Pty Ltd [or Arora International Markets Pty Ltd]. It will not be known what portion of the claim will be able to be met until the liquidators have finalised the process of the winding up of Arora Markets Pty Ltd [or Arora International Markets Pty Ltd]. 1. It is convenient to deal with this second defence first. Under s 269-15 the directors have an obligation from the day when the company's obligation is due to the DCT to cause the company to comply with its obligation to forward the withholding tax or to pay the SGCs. Under s 269-20 if the money has not been paid and the director remains under the obligation, the director becomes liable to pay the DCT a penalty equal to the unpaid amount of the company's liability under its obligation. In that way, it cannot be of any relevance whether the money will ultimately be found in the liquidation to pay the amounts that were formerly due by the company. At the relevant time, the Defendant became liable for those amounts as a primary and principal debtor, subject only to obtaining the benefits described in ss 269-40 and 269-45. Accordingly, what is pleaded in this way as a defence to the claim is no defence at all. 2. The factual basis for the defence under s 269-35 is found in the affidavit of the Defendant sworn 3 March 2017. That affidavit relevantly discloses the following information: (a) On 29 August 2013 the Plaintiff issued to Able Australia Pty Ltd, of which the Defendant was a director, a notice requesting an audit of goods and services tax for the period 1 January 2013 to 30 June 2013; (b) On 4 October 2013 the Plaintiff issued to Able Australia Pty Ltd a request for certain information of financial transactions for that period; (c) On 29 October 2013 the Plaintiff issued eight Audit Notices to entities controlled by the Defendant and his wife requiring responses by 29 November 2013; (d) On 30 October 2013 officers of the DCT visited the Defendant's home, unannounced. When they did not find the Defendant at home, they went to the Defendant's office where they interviewed him for 30 minutes. Those visits caused him embarrassment and extreme distress since a number of people including overseas visitors had gathered for a wedding celebration. Those actions also caused a loss of reputation and losses of business opportunities to the entities controlled by the Defendant and his wife; (e) On 13 February 2014 the DCT issued a notice of completion of review and audit. When the Defendant contacted the ATO to complain he was told that the officer could not find any reference to the notices issued to the Defendant's entities. This caused further distress to the Defendant and his wife. 1. The affidavit then went on to say this: 9. During the period of audits and reviews the plaintiff issued in total about 263 notices to the entities controlled by me and my wife. The overwhelming pressure created by the conduct of the plaintiff caused strain in the relationship between me and my wife, which eventually led to our separation and the family law proceedings. Our relationship was fine for 15 years until we experienced the undue pressure from the plaintiff. 10. As a result, I suffered from hypertension and emotional turmoil, rendering me unable to manage the entities under my control. 11. In desperation and as a result of the above unwarranted actions by the plaintiff, my wife and I filed a complaint against the plaintiff on 24 March 2014 to the Commonwealth Ombudsman (Exhibit 1). 12. For unknown reason, in about June 2014, Metcash, from whom the I and my wife (sic) purchased six former Franklin stores and who was franchisor to IGA stores, withdrew credit against deliveries to 20 IGA stores and demanded cash on delivery, as opposed to the former 28 days credit. 13. Metcash also reneged on the promise of rebate for the purchase of goods from them for the stores controlled by me and my wife. As a result the entities controlled by me and my wife lost about $4.5 million. 14. Dispute with Metcash led to the Federal Court proceedings which cost the entities controlled by me and my wife about $1 million in legal costs. 15. When the news became known, many of the goods suppliers to the entities controlled by me and my wife cancelled and adversely amended their credit terms, thus putting further pressure on me and my wife. 16. In July 2014 I and my wife, on behalf of entities controlled by us, negotiated a $19.5 million loan from the ANZ Bank, which was to be used to repay all outstanding liabilities of the entities controlled by me and my wife, including the liabilities to the plaintiff. The loan was only subject to the due diligence report by an approved accountant. While the report was being prepared the ANZ management became aware of the friction in the relationship between me and my wife, and withdrew their loan offer. 17. As the news spread, Westpac also withdrew their credit facilities and demanded immediate payment of the outstanding balance. 18. At the same time, in June 2014, Arora Markets Pry Ltd was served with a statutory demand for workers compensation premiums and late payment fees, in total of about $760,000. 19. I attempted to settle the dispute with Metcash and to gather some cash in order to repay the outstanding debts by selling the Minto IGA store however Metcash refused to extend time for their demand and appointed receivers to Arora Markets Pty Ltd. 20. All the above acts of others, beginning with the unwarranted action by the plaintiff, was too overwhelming burden to me who, with my failing heath, could not exercise due diligence in managing the companies under my control. 1. The only objection taken by counsel for the Plaintiff to any of this material was to exhibit 1 being a copy of the complaint the Defendant made about the ATO to the Commonwealth Ombudsman. 2. At the time the objection was taken, it was not clear what other evidence was to be led in the matter, particularly, whether the Defendant would be cross-examined. I indicated that I would provisionally admit exhibit 1 to the Defendant's affidavit and rule on its admissibility in the final judgment. 3. As it transpired, no further evidence was given and, in particular, the Defendant was not cross-examined. The Defendant submitted that the material in exhibit 1 provided the evidence of the various items of correspondence between the ATO and the Defendant at the relevant time and demonstrated the complaint that he made that led to the evidence given in his affidavit. 4. This is not the sort of case where evidence of a complaint is in some way corroborative of the events about which the complaint was made. Certainly, the correspondence forming part of the exhibit shows that a large number of notices were issued to the Defendant and various entities under his control. It is not suggested that there was any impropriety in the issue of those notices. A number of them were notices concerning the failure on the part of Arora Markets and Arora Markets International to comply with their obligations that led to the present proceedings. The material attached does not provide the primary evidence of other matters raised in the affidavit such as, for example, the negotiation of the facility with the ANZ Bank referred to in paragraph 16 of the affidavit. In my opinion, the exhibit is irrelevant and should be rejected. 5. It is difficult to understand why objection was not taken to a number of paragraphs in the Defendant's affidavit. They contain conclusion and assertion without any admissible evidence to support them. Moreover, a number of the assertions made are vague and imprecise in time. The assertion that the Defendant suffers from hypertension in paragraph 10 cannot be properly made by him. It is a medical diagnosis and any statement by him that he suffers from it could only be hearsay when there is no admissible evidence to justify it. Moreover, the assertion that while the due diligence report into the Defendant's companies was being prepared by the ANZ, the ANZ management became aware of friction in the relationship between his wife and himself which led to the withdrawal of the loan offer is entirely unsubstantiated. It could only be hearsay. Similarly, the assertion that "as the news spread" Westpac withdrew its credit facilities is without any basis. 6. I accept that the evidence was not objected to but, given the form in which the evidence is put forward, I am not obliged to accept it even though it is not contradicted. In my opinion it has little or no weight in the form in which it is given. 7. It needs to said in that regard also that if the Defendant is to rely on illness so that it could be said to have been unreasonable to expect him to take part in the management of the companies, I would have expected that there would have been medical evidence to support and justify the defence. 8. However, even if all of this evidence had been proved in admissible form the defence would still have failed for the reasons which follow. 9. Canty v Deputy Commissioner of Taxation (2005) 63 NSWLR 152; [2005] NSWCA 84 concerned a similar claim by the DCT under the predecessor provisions of the TAA which were then contained in sub-division B of Division 9 of Pt VI of the Income Tax Assessment Act 1936 (Cth). Those provisions were very similar to what are now contained in sub-division 269-A of the TAA. 10. Section 222AOB provided: (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 1AA, 2, 3A, 3B or 4, as the case may be, in relation to each deduction: (i) that the company has made for the purposes of that Division; 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 (1)(b); or (c) an administrator of the company is appointed under section 436A, 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. Section 269-35 of the TAA contains no equivalent to s 222AOB(2)(b) but that difference is irrelevant for present purposes. 1. Section 222AOC provided: 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 1AA, 2, 3A, 3B or 4, as the case may be; and (b) whose due date is the same as the due date. 1. Section 222AOJ provided: (1) This section has effect for the purposes of: (a) proceedings to recover from a person a penalty payable under this Subdivision; or (b) proceedings under section 222AOI against a person of the kind referred to in paragraph 222AOI (d). (2) It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at any time when: (a) the person was a director; and (b) the directors were under the obligation to comply with subsection 222AOB(1) … (3) It is also a defence if it is proved that: (a) the person took all reasonable steps to ensure that the directors complied with subsection 222AOB (1); or (b) there were no such steps that the person could have taken. (4) In subsection (3): 'reasonable' means reasonable having regard to: (a) when, and for how long, the person was a director and took part in the management of the company; and (b) all other relevant circumstances. 1. Justice Handley, with whom Beazley JA agreed, and Santow JA agreed with additional reasons, said: [31] The appellant's defence under s 222AOJ(3) [para 10] as pleaded was that he had taken all reasonable steps to ensure that the directors had complied with s 222AOB(1), or there were no such steps that could have been taken. The trial judge held that the defence failed because there was no evidence that the appellant had taken any steps to cause the company to comply with s 222AOB(1)(b) by making an agreement with the Commissioner under s 222ALA. This is factually correct but the appellant argued that it was legally incorrect. [32] The point was considered in Miller v D C of T (1997) 98 ATC 4059 but not decided because the defence there was that no reasonable steps could have been taken to secure compliance. Proof of this negative required the defendant to address each of the steps. See Mason P (pp 4063-4), and Priestley JA (p 4067). [33] However there are dicta in Miller which appear to address the present issue. Mason P, with the concurrence of Beazley JA, said (pp 4063-4): "According to the DCT, the appellant could not make out 'a defence' under s 222API(3) [the equivalent of the defence under s 222AOJ(3)] unless the appellant showed what I shall loosely call the reasonableness of his conduct in relation to all four of the options offered to the directors … The appellant submits that a director need only address one of the four options … and that it suffices if he or she proves that, in relation to that option, all reasonable steps were taken by that person to ensure that the directors caused the company to do one of the four options, or that there were no such steps that the person could have taken … I would reject this submission. What the directors have to do to comply with s [222AOB(1)] is cause the company to do at least one of the four matters. If none of the four matters occurs there has been non-compliance by the directors … The taking by a director of 'all reasonable steps to ensure' compliance by the directors obviously requires that each option be addressed, either in the sense of taking reasonable steps to bring it about or declining to do anything on the basis that there were no such steps that the director could have taken." … [41] If reasonable steps taken in pursuit of one option fail, non-compliance and the obligation of the director or former director will continue. The director or former director will therefore have to take reasonable steps to achieve compliance in another way. If non-compliance continues long enough before a notice is served each of the four options will eventually have to be addressed and the subs (3) defences will have to cover all options. Compare D C of T v Solomon (2003) 199 ALR 325 CA, 335-7. [42] It is necessary to consider whether these defences must be established for the whole of the period between the due dates and the expiry of the notice. … [45] Under s 222AOJ(3) it is a defence if the defendant proves that he or she "took all reasonable steps to ensure that the directors complied with" the obligation, or that "there were no such steps that the person could have taken". The natural meaning is that the combined defences must cover the whole of the period between the breach of the obligation on the due date and the expiry of the notice. 1. The material in the Defendant's affidavit seems to point to two matters; first, he was unable by reason of illness (sub-section 1) and that by arranging the loan with the ANZ Bank he had taken all reasonable steps to ensure that the company complied with its obligation (sub-section 2(a)(i)). Of course, in the first place, reliance on both subsections gives rise to a logical inconsistency, and it is difficult to see how both matters can stand together. Taking all reasonable steps, as the Defendant submitted he did, does not sit easily with it being unreasonable to expect him to take part in the management of the companies by reason of illness. However, that may be put to one side. 2. As Canty makes clear at [45], the obligation is throughout the entire period of the obligation. Similarly, in Deputy Commissioner of Taxation v George (2002) 55 NSWLR 511; [2002] NSWCA 336 Gzell J (with whom Handley and Giles JJA agreed) said: [27] The words "at any time" in s 222AOJ(2) related to the period when a person was a director and the directors were under an obligation to comply with s 222AOB(1). That means, in my view, that the director had to establish good reason for non-participation in the management of the company throughout the period the person was a director and the directors were under a s 222AOB(1) obligation. The defence was not enlivened if merely because on one or more discrete occasions during that entire period the director had good reason not to participate in the management of the company. The requirement was that a director did not take part in management at any time. That requirement was not satisfied if there was participation on one or more occasions. No participation at any time meant non-participation at all times. The submission of the respondent does not give weight to the negative requirement. In my view, a director who established that at some time during the directorship when under a s 222AOB(1) obligation, there was good reason for non-participation in the management of the company, did not gain a defence to a penalty under s 222AOC or s 222AOD based on an obligation continued by s 222AOB(3) at a time when there was no continuing defence. 1. In the case of Arora Markets that period commenced on 1 April 2012 in relation to the SGCs and 1 June 2013 in relation to the PAYG tax withheld. In relation to Arora International the period for the SGCs relevantly commenced for the Defendant on 12 October 2012 when he became a director of that company. In relation to the withholding tax the period commenced on 1 July 2013. Those dates all predate the earliest of the dates mentioned in the Defendant's affidavit for any issues which he claims ultimately led to his marriage breakdown, hypertension and emotional turmoil. 2. Furthermore, they all well pre-date July 2014 when he says that he negotiated the facility from the ANZ Bank. As to the latter, I do not consider that one unsuccessful application for finance to meet the obligation of the director a year or two years after the obligation commenced amounts to reasonable steps. No explanation is given about why the amounts due were not paid when they were due, nor why no action was taken by the Defendant to arrange for finance so that they could be paid both before and after the application was made to the ANZ. 3. Counsel for the Defendant suggested that the decision in Canty may not apply to the present form of the Act. No basis for that submission was proffered. The only difference between the legislative provisions considered in Canty and the present provisions would appear to be, as noted earlier, that one option previously available to a company, to make an agreement with the Commissioner under s 222ALA, is not now available. However, the remainder of the legislation is relevantly identical. There is no reason for concluding that Canty does not apply to the present provisions. 4. In my opinion, the defences relying on s 269-35 of the TAA are not made out by the Defendant. 5. Although the defence in s 269-35 was pleaded as a defence to the claim in respect of the Running Balance Account, that defence has no application to that claim. It is a defence concerned with a director's duty to ensure his company complies with its obligations as set out in s 269-10. The Defendant otherwise admits liability for this Account. Conclusion 1. The affidavit of the duly authorised officer of the ATO, Belinda Eather sworn 28 July 2017, sets out how the amounts owing by the Defendant are calculated. In respect of the claim against the Defendant for the penalties relating to withholding tax and SGCs she annexes to her affidavit a certificate under s 255-45 of Sch 1 of the TAA signed by a Deputy Commissioner of Taxation stating that at 27 July 2017 the sum of $1,750,932.45 was a debt due and payable by the Defendant in respect of the tax related liability arising under s 269-20. Under s 255-45 a certificate containing the matters in the certificate signed by the Deputy Commissioner of Taxation is prima facie evidence of the matters stated in proceedings such as the present to recover an amount of a tax related liability. There is no evidence to the contrary. 2. Interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) is claimed from the date of the issue of the statement of claim on 13 April 2016. Ms Eather's affidavit calculates that interest to 27 July 2017 as $128,062.44. The daily rate of interest thereafter is $26.31. Accordingly, to the date of judgment herein the amount of interest pursuant to s 100 totals $130,167.38. 3. Ms Eather also annexes a certificate under s 8AAZJ of the TAA in relation to the amount outstanding in respect of the running balance account deficit for the Defendant signed by a Deputy Commissioner of Taxation. Under that section the certificate is prima facie evidence of the amount specified in the certificate. That discloses that the amount due by the Defendant in relation to that debt is $13,829.70. There is no evidence to the contrary. 4. Accordingly, the total owing to the Plaintiff in respect of the penalties and the RBA debt is $1,894,929.53. 5. Accordingly, I make these orders: (1) Judgment for the Plaintiff in the sum of $1,894,929.53. (2) The Defendant is to pay the Plaintiff's costs. ********** 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. Decision last updated: 04 August 2017