Deputy Commissioner of Taxation v D’Arro [2026] QSC 109

SUPREME COURT OF QUEENSLAND CITATION: Deputy Commissioner of Taxation v D’Arro [2026] QSC 109 PARTIES: DEPUTY COMMISSIONER OF TAXATION (applicant/plaintiff) v ORAZIO SALVATORE D’ARRO (respondent/defendant) FILE NO/S: BS No 13569 of 2023 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 8 June 2026 DELIVERED AT: Brisbane HEARING DATE: 23 April 2026 JUDGE: McCafferty J ORDER: 1. The application is dismissed. 2. I will hear the parties on costs. CATCHWORDS: PROCEDURE — CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS — ENDING PROCEEDINGS EARLY — SUMMARY DISPOSAL — SUMMARY JUDGMENT FOR PLAINTIFF OR APPLICANT — GENERALLY — where the applicant commenced proceedings claiming penalties imposed on the respondent as director arising from his company’s failure to meet its taxation obligations — where the applicant seeks summary judgment — where the respondent contends he has a plainly arguable defence under s 269-35(2) of the Taxation Administration Act 1953 (Cth) — whether there is an arguable case that the respondent took all reasonable steps to ensure that one of the events under s 269-35(2) occurred — whether the matter is appropriate for summary determination Uniform Civil Procedure Rules 1999 (Qld), r 292, r 295 Taxation Administration Act 1953 (Cth), Sch 1 s 269-15, Sch 1 s 269-15(2), Sch 1 s 269-35, Sch 1 s 269-35(2), Sch 1 s 269-35(2)(a), Sch 1 s 269-35(2)(b), Sch 1 s 269-35(3) Canty v Deputy Commissioner of Taxation (2005) 63 NSWLR 152; [2005] NSWCA 84, considered Deputy Commissioner of Taxation v Heinrich [2024] QSC 51, cited -- 1 of 16 -- 2 Deputy Commissioner of Taxation v Salcedo [2005] 2 Qd R 232; [2005] QCA 227, considered Deputy Commissioner of Taxation v Saunig (2002) 55 NSWLR 722; [2002] NSWCA 390, considered Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, cited General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, cited Gray v Morris [2004] 2 Qd R 118; [2004] QCA 5, cited Roche v Deputy Commissioner of Taxation [2015] WASCA 196, considered Shaw v Deputy Commissioner of Taxation; Rablin v Deputy Commissioner of Taxation [2016] QCA 275, considered Webster v Lampard (1993) 177 CLR 598, cited COUNSEL: K Boomer for the applicant R J Anderson KC with C Matthews for the respondent SOLICITORS: ATO Litigation & Legal Services for the applicant Robinson Locke Litigation Lawyers for the respondent [1] The applicant (the DCT) seeks summary judgment under r 292 of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR) in the sum of $994,894.65, together with costs and interest, against the respondent, Mr D’Arro.1 [2] The basis for the claim is that Mr D’Arro is required to pay penalties under the Taxation Administration Act 1953 (Cth) (TAA) arising from a failure of Build Qld Pty Ltd (the company) to meet its taxation obligations under Subdivision 16-B in Schedule 1 to the TAA. The company’s failure to meet its obligations resulted in its directors, of which Mr D’Arro was one, becoming liable to pay the Commissioner of Taxation a penalty. [3] Mr D’Arro resists summary judgment. He contends that he has a plainly arguable defence under subsection 269-35(2) to Schedule 1 of the TAA for which there is need for a trial. [4] For the reasons which follow, the proceeding is not in my view an appropriate one for summary judgment. Rule 292 of the UCPR [5] Rule 292 provides for summary judgment for a plaintiff: “(1) A plaintiff may, at any time after a defendant files a notice of intention to defend, apply to the court under this part for judgment against the defendant. (2) If the court is satisfied that— (a) the defendant has no real prospect of successfully defending all or a part of the plaintiff’s claim; and 1 The application as filed also sought orders striking out parts of the further amended defence. At the hearing counsel for the applicant indicated this portion of the application was no longer pressed. -- 2 of 16 -- 3 (b) there is no need for a trial of the claim or the part of the claim; the court may give judgment for the plaintiff against the defendant for all or the part of the plaintiff’s claim and may make any other order the court considers appropriate.” [6] The parties were not in dispute as to the principles relevant to the application of this rule. The appropriate inquiry is in terms of the rule itself: whether there exists a realistic, as opposed to a fanciful, prospect of successfully defending all or a part of the claim. As Williams JA observed in Deputy Commissioner of Taxation v Salcedo:2 “ … Summary judgment will not be obtained as a matter of course and the judge determining such an application is essentially called upon to determine whether the respondent to the application has established some real prospect of succeeding at a trial; if that is established then the matter must go to trial. In my view, the observations on summary judgment made by the judges of the High Court in Fancourt v Mercantile Credits Ltd [1983] 154 CLR 87 at 99 are not incompatible with that application of r 292 and r 293; what is important is that in following the broad principle laid down by their Honours the test as defined by the rules is applied.” [7] The observations from Fancourt referred to by Williams JA are a reference to the well-settled principle that the “power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no question to be tried”3. In Gray v Morris4, McMurdo J (as his Honour then was) considered this cautionary statement to be “forceful and authoritative guidance”. [8] Consistent with this, great care must be exercised to ensure that “under the guise of achieving expeditious finality”5 a defendant should not be improperly deprived of their opportunity to defend the case. A proceeding will be determined summarily only in the clearest of cases, where there is a high degree of certainty about the outcome.6 In making this assessment it must be assumed that the evidence of the party against whom judgment is sought would ultimately be accepted, provided of course that the evidence is not inherently incredible.7 The basis of the DCT’s claim [9] Part 2-5 of Schedule 1 of the TAA concerns what is commonly known as the “pay- as-you-go” withholding regime. A company is obligated to withhold certain amounts from payments made to employees and office holders in accordance with this Part and must then pursuant to Subdivision 16-B remit those amounts to the Commissioner of Taxation. Section 269-15 provides that the directors of the company must cause the company to comply with this obligation. The directors of the company continue under this obligation—to cause the company to comply with its obligation—until any of the following four events occur: the company complies with its obligation, an administrator is appointed, a small business restructuring practitioner is appointed, or 2 [2005] 2 Qd R 232; [2005] QCA 227 (“Salcedo”) at [17]. 3 (1983) 154 CLR 87 at 99. 4 [2004] 2 Qd R 118; [2004] QCA 5 at [46]. 5 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130. 6 Salcedo at [3]. 7 Webster v Lampard (1993) 177 CLR 598 at 604. -- 3 of 16 -- 4 the company begins to be wound up. If none of these events occur, the director remains under the obligation under s 269-15 and the director penalty regime applies. [10] The operation of the director penalty regime was described by Martin SJA in Deputy Commissioner of Taxation v Heinrich8 as follows: “[10] Division 269 of Schedule 1 of the TAA contains the Director Penalty regime. It provides, among other things, for the imposition of penalties on the directors of companies which do not meet the obligation to pay withheld amounts to the Commissioner. The penalty will ordinarily be the same as the outstanding PAYGW obligation. [11] Directors of a relevant company continue to be under their obligation to cause the company to comply with its obligation until: (a) the company complies with its obligation; or (b) an administrator is appointed to the company under s 436A, s 436B or s 436C of the Corporations Act; or (c) a small business restructuring practitioner for the company is appointed under s 453B of the Corporations Act; or (d) the company begins to be wound up (within the meaning of the Corporations Act). … [14] There is a precondition to the commencement of proceedings to recover a penalty under Division 269. Under s 269–25, the Commissioner must not commence proceedings against a director to recover a penalty, unless the Commissioner has given 21 days’ notice to the director setting out ‘what the Commissioner thinks is the unpaid amount of the company’s liability under its obligation’. This notice is usually referred to as a director penalty notice or DPN. [15] A DPN does not create a right of action. Its purpose is to inform the recipient of the unpaid amount as then known to the Commissioner and of the actions which would result in remission of the penalty.” [11] There is no real dispute between the parties that the DCT has established a prima facie entitlement to relief. The company failed to meet its obligations under Subdivision 16-B. Mr D’Arro was a director of the company during the period when the tax liabilities were due. He remained under his obligation to cause the company to pay the Commissioner what was owed because none of the four events in s 269-15(2) occurred. [12] Mr D’Arro claims to have no recollection of having received the DPN and by his defence does not admit service of it. A mere assertion to this effect is insufficient. Under ss 269-25(4) and 269-50 of Schedule 1 of the TAA a DPN is taken to be given at the time the Commissioner leaves or posts it to an address that appears from information held by the Australian Securities and Investments Commission to be, or to have been within the last 7 days, the place of residence or business of the director. 8 [2024] QSC 51 at [10]-[11], [14]-[15]. -- 4 of 16 -- 5 That occurred here, and the relevant statutory notice period expired prior to the commencement of these proceedings. [13] The quantum of what is owed is not contested. To prove this, the DCT is assisted by s 350-20(1) which provides that a statement or averment made in a claim is prima facie evidence of the matter and, additionally, there is an evidentiary certificate under s 350-10(3) stating the amount payable. The only other possible impediment to proceedings is if an arrangement that covers the company’s liability is in force under s 255-15. There is no arrangement here. [14] The remaining issue, which was the focus of the hearing, is whether the DCT has satisfied the requirements for summary judgment under r 292 UCPR for the statutory defence under s 269-35. At a trial, Mr D’Arro would bear the onus, persuasive and evidential, of establishing the defence. On this application however the onus is on the DCT to persuade the court that Mr D’Arro has no real prospect of successfully defending the claim on the basis of this defence and that there is no need for a trial. The statutory defence [15] The relevant provisions are s 269-35(2) and (3) of Schedule 1 of the TAA which provide: “(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; (iia) the directors caused a small business restructuring practitioner for the company to be appointed under section 453B of that Act; (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.” [16] The operation of the defence under these provisions is not in dispute. It was explained by Buss, Newnes and Murphy JJA in Roche v Deputy Commissioner of Taxation9 as follows: 9 [2015] WASCA 196 (“Roche”) at [29], [31]-[35]. -- 5 of 16 -- 6 “[29] What is ‘reasonable’ for the purposes of s 269-35(2) does not depend merely upon the actual knowledge of the director but involves an objective test. The director must prove that he or she took all steps which were reasonable, having regard to the circumstances of which the director, acting reasonably, knew or ought to have known. … [31] What it was necessary for a director to do to establish a defence under the corresponding provisions previously contained in the Income Tax Assessment Act 1936 (Cth) was considered in Canty v Deputy Commissioner of Taxation (2005) 63 NSWLR 152; [2005] NSWCA 84. At the relevant time, s 222AOB(1) of the Income Tax Assessment Act required the directors, on or before the due date, to cause the company to do at least one of the following: to pay the withheld tax; to make an agreement with the Commissioner under s 222ALA; to appoint an administrator; or to begin to be wound up. Section 222AOC provided, relevantly, that it was a defence for a director to prove (par (a)) that he or she took all reasonable steps to ensure the directors complied with s 222AOB(1), or (par (b)) that there were no such steps that he or she could have taken. [32] Handley JA (with whom Beazley and Santow JJA agreed) explained the effect of the defence under s 222AOC as follows: ‘The defence under para (a) is that the person ‘took all reasonable steps to ensure that the directors complied with subsection 222AOB(1)’. Compliance would be achieved if any one of those events were to occur. Thus if payment was made there is no need for an agreement, an administrator, or a liquidator. If payment was being pursued the other courses would for the time being be unnecessary and counterproductive. If payment is out of the question or cannot be achieved the person bound must address the other steps. If winding up then becomes the preferred option there will be no need for the time being to seek the appointment of an administrator. The defences under para (a) and para (b) are cumulative not mutually exclusive. A defendant may establish that there was nothing that could reasonably be done to achieve payment. He or she may also establish that there was no point in attempting to negotiate an agreement with the Commissioner. In such a case the defence under para (b) would succeed pro tanto leaving the defence under para (a) to address the remaining options. In other cases the defence under para (b) may succeed in relation to all options, so that the defence under para (a) need not be considered. If the only feasible options are the appointment of an administrator or a liquidator a person under the duty, acting reasonably, may decide to seek a winding up. If so, he or she will not be acting unreasonably by doing nothing to secure the appointment of an administrator at that stage. The converse will also be true. -- 6 of 16 -- 7 Thus a person under the duty, who acted reasonably in choosing one of the possible events and took all reasonable steps to bring it about would, to that extent, make out the para (a) defence although no attempt was made at that stage to achieve compliance in any other way. A person who acted reasonably in choosing between the alternatives but failed to take all reasonable steps to bring about the selected event would fail, as would a person who acted unreasonably in choosing the option to be pursued. 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 [37]–[41].’ … [34] In our view, although the statutory provision considered in Canty was not in identical terms to s 269-35(2)(a), Handley JA’s reasoning is equally applicable to s 269-35(2)(a). [35] So, compliance with s 269-35(2)(a) requires the director to have taken all reasonable steps to ensure that one of the three alternative events specified happened. The taking by the director of ‘all reasonable steps to ensure’, within s 269-35(2)(a), requires that each of the alternative events be addressed, either on the basis of taking reasonable steps to ensure the event happened or declining to do anything about that particular event on the basis that there were no reasonable steps that the director could have taken to ensure that the event happened.” (citations omitted) [17] The reasoning of Handley JA in Canty10 was followed by Gotterson JA (with whom McMurdo JA and Atkinson J agreed) in Shaw v Deputy Commissioner of Taxation11 where it was observed: “[37] The explanation given by Handley JA had regard for the dicta in Miller to the effect that each of the options under the defence provision must be addressed. It then elucidated how that may be done conformably with the provision: it may be reasonable to choose and take all reasonable steps to pursue one option but if pursuit of it fails, then all reasonable steps to pursue another option must then be undertaken. Significantly, steps to pursue all of the options concurrently need not be taken. It is obvious that to attempt to do so could be counterproductive.” [18] The defences under s 269-35(2)(a) and (b) are cumulative. A director who seeks to rely upon the defence is required to address each of the four alternative events listed in subsections (2)(a)(i), (2)(a)(ii), (2)(a)(iia) and (2)(a)(iii) and prove that all reasonable steps were taken to ensure the event occurred or, under subsection (2)(b), that the director declined to do anything about the particular event on the basis that 10 Canty v Deputy Commissioner of Taxation (2005) 63 NSWLR 152; [2005] NSWCA 84. 11 [2016] QCA 275 (“Shaw”) at [37]. -- 7 of 16 -- 8 there were no reasonable steps the director could have taken to ensure that any of the four events occurred. It is not however necessary to concurrently pursue all the options. [19] A critical aspect of the defence is, as the language of the provision makes plain, the concept of reasonable steps. In determining what are reasonable steps it is necessary to have regard to the time at which, and duration for which, the person was a director and took part in the management of the company and all other relevant circumstances, of itself a concept of wide import. The basis upon which the defence is advanced [20] Mr D’Arro contends that he first became aware that the company had overdue tax liabilities on 13 September 2023. While the DCT does not accept this, its application for summary judgment is limited to the steps Mr D’Arro says he took from 13 September 2023 until he resigned as a director on 26 January 2024. [21] Mr D’Arro does not however seek to confine the consideration of the defence to the events that occurred on or after 13 September 2023. It is said that there is broader context which predates his first becoming aware of the tax liabilities that is relevant to the operation of the defence and which informs whether the steps taken were reasonable. That context is as follows. [22] The company was a construction company. Mr D’Arro was one of two directors. There was an informal agreement between Mr D’Arro and the other director as to their responsibilities. Mr D’Arro was responsible for construction management- related activities. The other director was responsible for the company’s financial accounting and management, including its taxation lodgements and payments of tax. The company utilised the accounting software Xero for this purpose. Mr D’Arro did not have access to the software and was reliant upon being shown its contents by the other director. It is said by Mr D’Arro that in the 18-month period prior to becoming aware of the tax liabilities, he had various discussions with the other director about various matters including to “ascertain that tax was being paid or to be paid.” Mr D’Arro also says that he: “… relied on the indication [by the other director] during these discussions which were to the effect, whether by implication or silence on account of [the other director] never saying anything to the contrary, that the company was able to meet its financial obligations. Further, during such discussions, about financial affairs of the company including cashflows regarding money receivable and money payable including tax, I recall [the other director] would regularly say that ‘everything’s under control’ and that I should ‘stay inside your wheelhouse and manage on site’. He said words to the effect of ‘don’t stress’ in relation to the financial affairs and liabilities of the company. He would say that the company was making lots of money.” [23] Also relevant is work the company was engaged in in the quarter prior to Mr D’Arro becoming aware of the tax liabilities. It is said in this period the company had substantial construction work under contract, estimated to a value of $30 million. While there were some issues with the contracted works which necessitated the company obtaining short-term funding as working capital, the position sought to be advanced was that Mr D’Arro thought the company’s business was prosperous. -- 8 of 16 -- 9 [24] Mr D’Arro says he first became aware there was an overdue tax liability on 13 September 2023. This occurred when the other director informed him that he had received a DPN. Shortly after this, Mr D’Arro and the other director met with a finance broker to “apply for bridging finance for the company, including to assist in meeting this tax liability.” It was during the meeting with the finance broker that Mr D’Arro claims the other director informed him that he had “adjusted the financial information for the company in the books and records”. This occurred in the presence of the broker. [25] The other director’s stated purpose for manipulating the financial records was one of self-interest: to purchase an apartment in Noosa. Mr D’Arro’s position is that he was deceived by the other director and that his actions occurred without his knowledge or consent. [26] The relevant broker has provided an affidavit not inconsistent with this. In his words, the other director “stated to me that he had declared more income for himself to assist in his ability to obtained [sic] finance.” The company’s bookkeeper has also provided an affidavit consistent with the other director having created invoices to increase the company’s income. [27] Upon being informed that the other director had manipulated the company’s financial records, or shortly thereafter, Mr D’Arro says that three matters occurred: (a) First, the company retained accountants to prepare its accounts and to provide accounting business advice. Mr D’Arro also says that he understood “on the basis of what is recorded in [the accountants’ invoices]” that they were “engaged to … negotiate a payment plan with the ATO of any outstanding liabilities”. (b) Second, Mr D’Arro “orally directed [the other director] to ensure the company receivables and the finance would be used to meet creditor [sic], including payment of any tax”, to which the other director “agreed he would.” (c) Third, the other director provided Mr D’Arro “with spreadsheets showing that the tax debt would be cleared by January to March of 2024”. [28] These matters are not all contained in the defence. The defence does not plead that the accountants were retained to negotiate a payment plan. Nor does it plead that the other director provided spreadsheets demonstrating that the tax debt would be cleared in the first quarter of 2024. [29] The affidavit provided by Mr D’Arro to resist summary judgment did not contain the accountants’ invoices upon which his understanding was based. Subsequent to the hearing, a further affidavit was provided. This affidavit exhibits the invoices. Amongst the work undertaken by the accountants, reflected in an invoice dated 21 December 2023, is “Calls with ATO in relation to payment plan”, “Contact with client in relation to payment plan” and “Draft correspondence to letter in relation to payment plan”. The documents which record the work performed by the accountants are not in evidence but for the purposes of this application it may be assumed the work was undertaken. [30] The reference to “finance” within the second matter is finance the company had applied for shortly before 13 September 2023 but received after Mr D’Arro became aware of the tax liabilities. The amount received was $1.537 million. It was personally -- 9 of 16 -- 10 guaranteed by Mr D’Arro and his wife and secured by a mortgage over their home. Mr D’Arro’s evidence is that the funds were: “ … used for working capital of the business, payment of some personal liabilities of [the other director] (of which I was not previously aware, but which were mandated by [the lender] as being required to be paid as a condition of the finance facility) and payment of the company’s tax obligations.” [31] It is not apparent how much of the sums advanced were applied towards the company’s tax obligations. Mr D’Arro’s position is that he expected the company would continue to trade in accordance with a cashflow forecast prepared by the other director and “earn sufficient funds to pay the remainer [sic] of the tax.” [32] In addition to these matters (and the context outlined), Mr D’Arro contends that the company was solvent. In his view, the company had capacity to pay its tax liabilities from the cash at bank, anticipated receivables and financing. The financing aspect has been considered above. The balance of the matters relating to solvency purport to give the financial picture “as at 10 January 2024”. The picture captured at this point, “on the face of the accounts”, showed a net asset position of $896,679, with the consequence that the “company was solvent in that it could pay all its debts as and when they became due and payable.” [33] It is in these circumstances that Mr D’Arro invokes the defence under s 269-35(2). It is pleaded at paragraphs 39 and 39A of the defence in this way: “39. Up to 26 January 2024 and in the premises of the matters pleaded in the aforesaid five paragraphs: (a) the company did not satisfy the requirements of s. 436A of the Corporations Act, and it was not possible in law for it to be placed into administration; (b) No reasonable step could be taken at that time to place the company into administration; (c) The company did not satisfy the requirements of s. 453B of the Corporations Act, and it was not possible in law for it to commence a small business restructure; (d) No reasonable step could be taken at that time to place the company into small business restructure; (e) As the company was not insolvent and was making a profit, it was inappropriate or unreasonable for there to be a resolution under s 491 of the Corporations Act, for it to be wound up voluntarily; (f) No reasonable step could be taken at that time to place the company into voluntary winding up. … 39A. Accordingly, for the period 23 September 2023 to 26 January 2024: (a) The Defendant took all reasonable steps to ensure that the company would comply with its tax obligations, in circumstances where: -- 10 of 16 -- 11 (i) the Defendant was unaware of the tax liabilities (pleaded by the plaintiff) until he first became aware, in part, of the same on or about 13 September 2024 [sic]; (ii) shortly thereafter, the Defendant caused the company to obtain the advance from [the lender] to meet certain liabilities including what he believed would in large part meet the company’s tax liabilities; (iii) further, the Defendant assessed the value of the current and future construction work, with the cashflow forecast produced by [the other director], upon which the Defendant believed would be sufficient to earn sufficient funds to pay the remainder of any existing and future tax liabilities, (b) The Defendant took all reasonable steps to place the company into Administration, Small Business Restructure or voluntary winding up, being that none of these was possible for the reasons please [sic] above and the Defendant’s belief of the sufficiency of funds to meet the company’s liabilities; and (c) Further or alternatively, there was no reasonable step that could have been taken, in the circumstances pleaded above, to ensure that any of these things happened where the steps taken and identified above in this pleading were reasonably taken to ensure that the company would comply with its tax obligations.” The DCT’s contentions [34] The DCT’s position is that the facts as pleaded do not give rise to the statutory defence. It is contended, consistent with the principles set out above, that a defendant must address each of the available options provided for in s 269-35(2)(a)(i), (ii), (iia) and (iii): causing the company to pay its debts, or causing an administrator to be appointed, or causing a small business restructuring practitioner to be appointed, or causing the company to be wound up. If one option fails, then a defendant must take reasonable steps to pursue another. [35] The DCT accepts that the company’s solvency is, in theory, relevant to why the actions under s 269-35(2)(a)(ii), (iia) and (iii) were unavailable. However, it is argued that this proposition simultaneously undermines the implicit position that there were no reasonable steps that Mr D’Arro could have taken to cause the company to pay its debts. [36] As to this, the argument advanced by the DCT is that within the defence Mr D’Arro does not expressly allege any steps that he took to cause the tax liabilities to be paid after September 2023 or why there were no reasonable steps that could have been taken to cause them to be paid. It was submitted, in substance, that the only steps Mr D’Arro took after becoming aware of the outstanding tax liabilities were to obtain finance (albeit it had been applied for prior to his awareness) and to direct the other director to ensure the company utilised its receivables and the finance obtained to meet its tax obligations. To accept that these steps are sufficient to engage the statutory defence would, it was submitted, involve an acceptance that Mr D’Arro was -- 11 of 16 -- 12 entitled, upon becoming aware of the tax liabilities, to “effectively do nothing for a period of four months.” Consideration [37] Section 269-35(2)(a) requires the director to have taken all reasonable steps to ensure that one of the alternative events specified happened. Each of the alternative events must be addressed, either by taking reasonable steps to ensure the event happened or by declining to do anything about that particular event on the basis that there were no reasonable steps the director could have taken to ensure that the event happened. If a company is solvent then realistically to decline to take the steps under s 269- 35(2)(a)(ii), (iia) and (iii) may well be a basis upon which the defence can be maintained. [38] As to the remaining event, s 269-35(2)(a)(i), Mr D’Arro relies upon Shaw to demonstrate that the facts he has raised are sufficiently arguable to warrant a trial. [39] To understand that submission it is necessary to consider Shaw in some detail. That case concerned two directors, Shaw and Rablin, of a company, STL, which failed to remit sums to the Commissioner for PAYG. Shaw and Rablin were issued with DPNs and proceedings were commenced against them. They pleaded a defence in reliance on s 269-35(2)(a) and (b) and were met with an application for summary judgment by the DCT. [40] In response to the summary judgment application, both directors put on affidavit evidence. The evidence was not objected to and there was no cross-examination of either director. Shaw’s evidence was to the following effect. For a period of several months STL sought unsuccessfully to increase its banking facilities (from $1.5 million to $2.5 million) to cover normal operations. This process was met with complications. Those complications, which of themselves are complicated, were the product of another related company, STC, having been placed into voluntary administration in February 2013 and the fact that STC and STL held a loan and a debtor factoring facility with a joint limit which the entities could freely transfer between them as their operating requirements demanded. When the first attempt at negotiating was unsuccessful Shaw retained a consultancy firm to continue negotiations with the bank. This occurred in March 2013. These further negotiations also failed. The consultancy firm, on STL’s behalf, then approached debtor factoring companies. The result of this was that in May 2013 a facility was approved. It however required the bank to settle on refinance of the facility in the name of STL. The bank indicated that it would not be prepared to do so until STC had been sold. This eventually occurred and in September 2013 settlement of the STL debtor finance facility was effected with the bank. By this time, it was considered too late to be of benefit to STL and in October 2013 STL was placed into liquidation. [41] Rablin’s affidavit was more economical. His evidence was that he and Shaw held different responsibilities within the group of which STL formed part. Shaw undertook the management of STL and Rablin was aware Shaw was seeking to increase its banking facilities and had retained a consultancy firm to assist. [42] The primary judge considered that the essence of the case advanced by Shaw and Rablin in reliance on the statutory defence was that they tried to ensure that the company could obtain funding to meet its obligations but were unsuccessful. In terms of Shaw, the primary judge considered: -- 12 of 16 -- 13 “[48] In order to avail himself of the defence, Mr Shaw had to take all steps which were objectively reasonable, having regard to the circumstances of which he, acting reasonably, knew or ought to have known. Yet even the evidence which touched upon the steps which were taken towards ensuring that the Company could pay was couched at the vaguest levels of generality and was expressed in relation to debts generally rather than the debt owed to the Commissioner in particular. And, insofar as the evidence touched upon expectations which were formed … , it was at the highest level of generality and there was no real evidence of the foundation of the expectation as might enable the defendant to persuade me that there were real prospects of establishing its objective reasonableness. [49] Moreover, as I have said, there was no evidence touching upon the defendant’s examination of the other options, namely administration and liquidation, and this despite the fact that a related company was already in voluntary administration. One may infer from the fact that a creditors voluntary winding up commenced on 3 October 2013, that there must have been some consideration of the liquidation option, but there is an absence of evidence addressing what was that consideration, when it occurred, and whether it was reasonable. And there is nothing at all touching upon the administration option. In the absence of any explanation for the absence of that evidence (or even of evidence describing the existence of matters which could be developed further at a trial) and noting that the application for summary judgment was filed on 24 August 2015 and argued before me on 16 November 2015, I infer that the evidence has not been adduced because it would not assist the defendant’s case. [50] On the material before me, I conclude that the defendant’s s 269-35(2) defence does not have any real prospect of success.” [43] The Court of Appeal considered that it was not open to the primary judge to be satisfied that the matter met the requirements for summary judgment under r 292. The critical reasons why were explained by Gotterson JA in the following passages: “[38] The evidence that was adduced disclosed that by the end of February 2013, Mr Shaw had taken a step towards increasing the allocated limit for STL on the Bank facility from $1.5 million to $2.5 million. On or about 12 March, the Bank intimated to him that it was unable to increase the limit. On 21 March, Mr Shaw engaged a specialist business consulting firm for advice and to attempt to negotiate with the Bank. Those attempts failed and in April 2013, the consultancy firm sought funding approval from two debtor factoring companies. By early May, each of those companies had approved a facility of $2.5 million for STL. According to Mr Shaw, the approvals resulted in expectations that STL could meet its obligations in the near future and that buoyant ongoing trading would ensure future outgoing payments could be met. [39] Evidently, it was intended that the Bank facility for STL would be settled from funds advanced under a replacement facility. In May and June 2013, discussions took place with the Bank for settlement of the then current facility. On 2 July, the Bank notified that it would not permit settlement -- 13 of 16 -- 14 until sale of the group company, STC, had taken place. The sale was completed on 2 August. The Bank facility was settled on 20 September. By that time, it was too late to be of benefit to STL. The company was then placed in liquidation on 3 October 2013. [40] As the learned primary judge observed, some consideration must have been given to liquidation or voluntary administration prior to the liquidation date. It is not clear precisely when consideration was so given. It may well not have been until after the Bank facility was settled. [41] However, it is equally clear that the directors of STL were not obliged to pursue the options of liquidation or voluntary administration whilever they were taking all reasonable steps to enable STL to pay the amounts due to the Commissioner. Within the factual context deposed to by Mr Shaw, it would have been reasonable for the directors to have pursued such steps in that direction only so long as it was reasonable to expect that either of the approved refinancings would have continued to avail STL. [42] For how long it was reasonable to pursue the refinancing option in order to pay the amounts due and payable to the Commissioner and whether all reasonable steps were taken to pursue that option within that period, are factual questions to be answered by reference to, and upon a consideration of, the constellation of primary facts relevant to them. In response to an application for summary judgment, it was not necessary for the appellants to have adduced evidence, as they might at trial, which comprehensively addressed all such facts. [43] In my view, the facts deposed to by Mr Shaw are sufficient to warrant a conclusion that a possible defence under s 269-35(2) is potentially available to the appellants. It is not one that is apt to be characterised as a mere fanciful defence. There is a need for a trial in which the factual issues relevant to the defence can be investigated. In this regard, I would not differentiate between Mr Shaw and Mr Rablin. It is not appropriate at this point to conclude against the latter that, in relying on Mr Shaw consistently with the allocation of responsibilities between them, he must not have taken all reasonable steps. I note that it was not submitted on behalf of the respondent that it would be appropriate to draw such a conclusion.” (emphasis added) [44] The DCT argues that Shaw is distinguishable for two reasons. The first is that while Gotterson JA considered, at [41], there was no obligation on the part of Shaw and Rablin to pursue options of liquidation or voluntary administration while they were taking reasonable steps to ensure the tax liabilities were paid, Mr D’Arro was not taking any reasonable steps. Unlike Shaw, Mr D’Arro was not trying to obtain finance. The second reason is advanced by reference to Gotterson JA’s consideration of Roche. In substance, it is a contention that Mr D’Arro, like Mr Roche, has failed to adduce sufficient evidence (or plead sufficient facts) that he had taken any steps to cause the company to meet its obligations. The only evidence it is said that Mr D’Arro has adduced is that he directed the other director to cause the company to meet its tax obligations. -- 14 of 16 -- 15 [45] In my view, the outcome in Shaw is an illustration of the cautionary statement I have outlined. The two distinctions sought to be made by the DCT from this case and Shaw do not satisfy me that this is an appropriate case for summary judgment. [46] As to the first, the case Mr D’Arro seeks to advance by way of defence is not materially different from Shaw. Both involve claimed attempts by directors to meet their companies’ obligations. In Shaw the attempts took the form of the directors seeking to obtain funding. In the present case, Mr D’Arro says four things occurred. First, efforts were made to retain accountants to negotiate a payment plan. The evidence is consistent with the accountants having made some attempt to do so. On the face of the invoices those efforts are likely to have occurred in December 2023. That, in my view, is a consideration relevant to the potential operation of the statutory defence. Second, funding was obtained, part of which was applied towards the tax debt. Third, it was intended for the company to continue to trade which, in Mr D’Arro’s view, it had a means of doing so. Fourth, Mr D’Arro says that the other director provided a spreadsheet showing how the tax debt would be cleared and that he directed the other director to ensure the company’s receivables would be used to meet its obligations including as to tax. [47] The second distinction in my view does not accommodate the possibility that the actions taken by Mr D’Arro were, or could be considered, a system to produce compliance. As Heydon JA (as his Honour then was) observed in Deputy Commissioner of Taxation v Saunig (speaking in the context of an earlier version of the statutory defence):12 “While even in a relatively small organisation like the company in this case it may not be right to require each director to take personal steps to ensure compliance with s 222AOB(1)(a), it was incumbent upon Mr Saunig to ascertain what the company's duties in relation to tax instalments deducted from employees' wages were and to ensure that some system was in place which would produce compliance. There was no evidence of any such system.” [48] These observations were made in the context of an appeal following a trial. They are relevant here. What they demonstrate is that any consideration of s 269-35(2)(a) and (b), which is piloted by the concept of reasonable steps, may require an examination of whether there was some system in place to produce compliance. That, in this case, is a factual inquiry which is sufficiently raised on the evidence. [49] The second distinction sought to be drawn also does not factor in the possibility that the company that Mr D’Arro believed was solvent could continue to trade in order to meet its tax obligations. That possibility must also be seen in the context, so Mr D’Arro contends, that he was deceived by the actions of the other director. This was considered a relevant feature in Roche. The finding in Roche that there was no evidence that the director took steps to cause the company to meet its obligations, included the absence of any suggestion that the director did not have access to the company’s books or “that he was actively mislead”.13 In this case, evidence of both has been adduced. That evidence was not challenged. [50] There may well be a degree of scepticism with the evidence. The proposition that Mr D’Arro could rationally or reasonably rely on the other director’s spreadsheet as to how and when the tax obligations would be paid may be questionable. This 12 (2002) 55 NSWLR 722; [2002] NSWCA 390 at [28]. 13 Roche at [17]. -- 15 of 16 -- 16 scepticism may well approach cynicism given the other director is the person who is said to have deceived Mr D’Arro by manipulating the company’s books. The legitimacy of continuing to trade, for a period of four months, with a view to meeting the company’s obligations in circumstances where the company’s contracted works were delayed and required it to obtain short term finance as working capital might also be the subject of some criticism. [51] These questions and inquiries may well inform the operation of the defence and whether it has been made out. They are however factual inquiries appropriately undertaken at trial. The inquiries also turn upon whether certain conduct is assessed as reasonable or not. This in turn requires a value judgment about which reasonable minds may well differ. It is also a factual question to be answered by reference to, and upon a consideration of, the constellation of primary facts relevant to them. [52] Related to this, there is in my view another impediment to summary judgment. In essence, in advancing the application the DCT confined itself to the pleaded case commencing from the date Mr D’Arro claims he first became aware of the outstanding tax liabilities until the date he resigned. It was contended that the facts as pleaded do not give rise to the statutory defence and that what the application raised was a pure question of law. For the reasons I have identified, I do not consider the application raises only a question of law. [53] In responding to the present application, the pleaded case was of course relevant. But the Court is not confined to considering only the pleaded case. There were various affidavits relied upon by Mr D’Arro. He was entitled to do so.14 It was not necessary for Mr D’Arro to have adduced evidence, as he might at trial, which comprehensively addresses all such facts. For present purposes, while aspects of the evidence might be the subject of legitimate question or criticism, the matters are not inherently incredible, nor are they risible. To adopt what Gotterson JA said in Shaw, to pose these questions on an application for summary judgment would risk error by substituting such a test for the one of no real prospects of successfully defending the claim set by r 292. Conclusion [54] In circumstances where, as a matter of principle, the jurisdiction to summarily determine a proceeding should only be exercised in the clearest of cases and where there is a high degree of certainty about the outcome, I am not persuaded that the claim is an appropriate one for summary judgment. [55] I order that the application be dismissed. [56] I will hear the parties on costs. 14 UCPR r 295. -- 16 of 16 --