Deputy Commissioner of Taxation v Rablin; Deputy Commissioner of Taxation v Shaw [2016] QSC 68

SUPREME COURT OF QUEENSLAND CITATION: Deputy Commissioner of Taxation v Rablin; Deputy Commissioner of Taxation v Shaw [2016] QSC 68 PARTIES: In SC No 3009 of 2014: DEPUTY COMMISSIONER OF TAXATION (plaintiff) v DALE FRANCIS RABLIN (defendant) In SC No 3369 of 2014: DEPUTY COMMISSIONER OF TAXATION (plaintiff) v WILLIAM DOUGLAS SHAW (defendant) FILE NO/S: SC No 3009 of 2014 SC No 3369 of 2014 DIVISION: Trial Division PROCEEDING: Application for summary judgment DELIVERED ON: 1 April 2016 DELIVERED AT: Brisbane HEARING DATE: 16 November 2016 JUDGE: Bond J ORDER: In SC No 3009 of 2014 and SC No 3369 of 2014: The plaintiff is directed to bring in minutes of an order reflecting the Court’s conclusions that there should be judgment in favour of the plaintiff and the defendant should pay the plaintiff’s costs of and incidental to the proceeding, including the application for summary judgment, to be assessed on the standard basis. CATCHWORDS: PROCEDURE - CIVIL PROCEEDING IN STATE AND TERRITORY COURTS - ENDING PROCEEDINGS EARLY - SUMMARY DISPOSAL - GENERALLY - where Commissioner seeks summary judgment against defendants for director’s penalties under the Taxation Administration Act 1953 (Cth) - where defendants propose to defend the claim on the basis that the penalties had been remitted by operation of law under s 269-30 - where, in the alternative, defendants propose to defend the claim on the basis that they took all reasonable steps under s 269-35 - whether either argument has any real prospects of success Taxation Administration Act 1953 (Cth) -- 1 of 14 -- 2 Uniform Civil Procedure Rules 1999 (Qld), r 292 Canty v Deputy Commissioner of Taxation (2005) 63 NSWLR 152, cited Coldham-Fussell v Commissioner of Taxation [2011] QCA 45, cited Miller v Deputy Commissioner of Taxation (1997) 98 ATC 4059, cited Roche v Deputy Commissioner of Taxation [2015] WASCA 196, considered COUNSEL: In SC No 3009 of 2014 and SC No 3369 of 2014: P Looney QC, with M Lyons, for the plaintiff S D Anderson for the defendant SOLICITORS: In SC No 3009 of 2014 and SC No 3369 of 2014: ATO Dispute Resolution for the plaintiff JHK Legal for the defendant Introduction [1] In each of the two proceedings before me, the plaintiff (“the Commissioner”) claims monies said to be due and owing from a director of State Wide Trades & Labour Hire Pty Ltd (“the Company”). The Commissioner claims $879,526.00 from Mr Shaw (the defendant in SC No 3369 of 2014) and $814,090.32 from Mr Rablin (the defendant in SC No 3009 of 2014). [2] The amounts claimed are for penalties imposed on the defendants qua directors in respect of amounts withheld by the Company in respect of PAYG tax from payments made to its employees, but which amounts were not paid by the Company to the Commissioner. [3] The Commissioner applies for summary judgment plus interest and costs. If the Commissioner fails on that application, the Commissioner applies in the alternative for an order striking out various parts of the defences on the basis that they do not plead matters which have any real prospect of success or they otherwise fail to comply with the rules of pleading. [4] Because the proceedings differ only in respect of the identity of the defendant and the quantum claimed and, because, otherwise, the pleadings are identical, I will deal only with the argument in respect of the application against Mr Shaw. It was common ground that the application against Mr Rablin should be resolved in the same way as the application against Mr Shaw. The legislative scheme [5] Division 12 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (“the Schedule”) obliges companies to withhold certain amounts from various payments they make. One such obligation is found in s 12-35 which provides that a company must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee. [6] Division 16-A of the Schedule imposes various other obligations on a company which, pursuant to Division 12, is obliged to withhold an amount from a payment. Division 16 operates to set the time when the company must withhold the payment, namely at the time of making the payment of salary, wages and other payments (s 16-5), to discharge the company from liability to the recipient for the amount withheld (s 16-20) and creates an offence and imposes penalties on the company for failure to withhold as required (ss 16-25 and 16-30). -- 2 of 14 -- 3 [7] Division 16-B of the Schedule operates to oblige the company to pay to the Commissioner the amounts withheld (s 16-70), sets the time and manner by which that must occur (ss 16- 75 and 16-85) and imposes a penalty for failure to pay within time (s 16-80). Notably: (a) Section 16-70 provides that a company that withholds an amount under Division 12 must pay the amount to the Commissioner in accordance with Division 16-B. (b) The timing and manner of such payments differs as to whether the company obliged to withhold amounts is a "large withholder", a "medium withholder" or a "small withholder": s 16-75. (c) A "large withholder" (and it is common ground that the Company fell within that description) is obliged to pay the Commissioner on or before a particular day during the week after the date the amount was withheld, depending on the day of the week on which the payment was withheld: s 16-75(1). (d) Such payment must be made by means of an "electronic payment": s 16-85(1). [8] Division 16-C sets out a number of obligations to provide information to the Commissioner. Relevantly: (a) Section 16-150 provides that a company that must pay an amount to the Commissioner under s 16-70(1) (even if it is a nil amount): ...must notify the Commissioner of the amount on or before the day on which the amount is due to be paid (regardless of whether it is paid). The notification must be in the approved form and lodged with the Commissioner. (b) Obviously the requisite notice is a notice of the amount which the company must pay to the Commissioner under s 16-70(1). And it is a notice which must be given on or before the day on which the amount is due to be paid. (c) The term “approved form” is defined in s 995-1 of the Income Tax Assessment Act 1997 (Cth) as having “the meaning given by section 388-50 in Schedule 1 to the Taxation Administration Act 1953”. That section appears in Division 388, the expressed object of which is “to set out requirements to ensure the integrity and efficiency of giving material to the Commissioner”: s 388-5. (d) Section 388-50 provides (emphasis added): 388-50 Approved forms (1) A return, notice, statement, application or other document under a taxation law is in the approved form if, and only if: (a) it is in the form approved in writing by the Commissioner for that kind of return, notice, statement, application or other document; and (b) it contains a declaration signed by a person or persons as the form requires (see section 388-75); and (c) it contains the information that the form requires, and any further information, statement or document as the Commissioner requires, whether in the form or otherwise; and (d) for a return, notice, statement, application or document that is required to be given to the Commissioner—it is given in the manner that the Commissioner requires (which may include electronically). (1A) Despite subsection (1), a document that satisfies paragraphs (1)(a), (b) and (d) but not paragraph (1)(c) is also in the approved form if it contains the information required by the Commissioner. The Commissioner must specify the requirement in writing. (2) The Commissioner may combine in the same approved form more than one return, notice, statement, application or other document. -- 3 of 14 -- 4 (3) The Commissioner may approve a different approved form for different entities. Example: The Commissioner may require high wealth individuals to lodge a different income tax return to that required to be lodged by an individual whose only income is a salary. (e) It was common ground that there is no form approved in writing by the Commissioner as the form by which a large withholder should notify the Commissioner of the amount which the withholder is due to pay to the Commissioner under s 16-70. The Commissioner takes the approach that making the electronic payment on or before the due day will be satisfactory compliance both with the obligation to pay on or before the due day (s 16-70) and the obligation to notify the Commissioner of the amount on or before the day on which the amount is due to be paid (s 16-150). (f) That the Commissioner takes this approach is apparent from the instructions which the Commissioner gives to large withholders. In the Commissioner’s publication “Guide for businesses with a PAYG withholding obligation - PAYG withholding for large withholders”, the Commissioner explains the manner in which PAYG withholding must be reported. The Guide provides (emphasis added) – (i) At page 5: As a large withholder, you will receive an activity statement each month or each quarter, depending on your GST reporting cycle. If you are not registered for GST, you will receive an activity statement each quarter. You only need to complete label W1 – “Total of salary, wages and other payments” in the withholding section of the activity statement. Do not report other amounts you withheld at any other label - these other amounts are reported through the electronic payment process. (ii) At page 5 in a worked example, that where a large withholder paid salary, wages and other payments of $3,020,000 and withheld a total of $900,000 from that amount, the company “must report and pay [the amount withheld] … electronically by [the date which derives from the application of s 16-75]” and in the subsequent activity statement the company will include at label W1 the total salary, wages and other payments paid, but “does not report the tax withheld from the amount shown at W1 on the activity statement”. [9] Division 269 of the Schedule contains provisions the expressed object of which is to ensure that a company either meets its obligations under Division 16-B or goes promptly into voluntary administration or liquidation: s 269-5. The way Division 269 goes about achieving that object is to impose an obligation on a director of a company by the end of the due day to have the company either meet its obligations under Subdivision 16-B or be placed into voluntary administration or into liquidation, failing which the director will be subject to a penalty. The Division also provides that penalties can be remitted in certain circumstances and creates a defence if the director took all reasonable steps to ensure the company complied with its obligations. [10] Notably and in relation to a company’s obligations to pay amounts withheld from salary, wages and other payments it paid to an individual as an employee: (a) Section 16-5 requires the company to withhold the payment at the time of making the payment. For the purposes of Division 269 that date is referred to as “the initial day”: s 269-10. (b) Section 16-75 requires a company which is a large withholder to pay the Commissioner the amount withheld on or before a particular day during the week after the date the amount was withheld, depending on the day of the week on which the -- 4 of 14 -- 5 payment was withheld. For the purposes of Division 269 that date is referred to as “the due day”: s 269-10. (c) Section 269-10 provides that Division 269 applies as set out in a table in the body of the section. The table is expressed to identify the obligations with which directors must cause a company to comply. The relevant part of the table provides that Division 269 applies if, on the initial day, a company withholds an amount under Division 12 and the company is obliged to pay to the Commissioner on or before the due day that amount in accordance with Division 16-B. (Although curiously worded, the section probably does no more than reinforce the intention – confirmed by s 269-15 - that Division 269 applies to require the directors to cause a company to comply with its obligation to pay withheld amounts to the Commissioner on or before the due day as required by Division 16-B.) (d) Section 269-15 directly imposes relevant obligations on directors. The directors must on or after the initial day cause the company to comply with “its obligation”: s 269- 15(1). And they continue to be under the obligation so to do until the company complies with “its obligation”, or goes into administration or liquidation: s 269-15(2). In light of the wording of ss 269-5 and 269-10, there is no doubt that the obligation of the company with which the directors must cause the company to comply must be the obligation to pay withheld amounts to the Commissioner on or before the due day as required by Division 16-B. (e) Section 269-20 imposes a penalty on a director who has not complied with the s 269- 15 obligation. A director becomes liable to pay to the Commissioner a penalty if, at the end of the due day, the directors of the company are under an obligation under s 269-15 and the director was under that obligation at or before that time. That phrasing makes sense because if the directors have complied with s 269-15, they would have either caused the company to pay the withheld amounts or the company would have gone into administration or liquidation. In any of those cases, the director would no longer be under an obligation and, accordingly, would not be liable for a penalty. (f) The penalty is due and payable by the director to the Commissioner at the end of the due day: s 269-20(2). The amount of the penalty is "equal to the unpaid amount of the company's liability under its obligation": s 269-20(5). Again, that obligation must be the obligation to pay withheld amounts to the Commissioner on or before the due day as required by Division 16-B. (g) Section 269-25(1) prohibits the Commissioner from commencing proceedings to recover such a penalty "until the end of 21 days after the Commissioner gives [the director] a written notice under this section". The notice must, inter alia, "set out what the Commissioner thinks is the unpaid amount of the company's liability under its obligation": s 269-25(2)(a). Ex hypothesi, the Commissioner could not give a notice unless the Commissioner formed the view that a particular amount had been withheld and was unpaid. The issues which arise on the Commissioner’s application [11] It is necessary first to identify the Commissioner’s case against Mr Shaw in a little more detail. [12] As I have mentioned, the Commissioner claims $879,526.00 from Mr Shaw as penalties which are due and owing by operation of the Schedule. That sum is obtained as the total of penalties imposed, less a distribution received by the Commissioner by way of distribution from the liquidators of the Company. -- 5 of 14 -- 6 [13] The total amount of Mr Shaw’s penalty liability before that distribution was $1,042,006, which was arrived at by the cumulation of a number of penalties imposed on him as a director of the Company when the Company failed to pay amounts by the end of successive “due days” as follows: Due day and amount to be paid by Company to Commissioner Amount of penalty at end of due day when Company failed to pay Cumulative total of penalty imposed 21.03.13 - $61,479 $61,479 $61,479 28.03.13 - $68,218 $68,218 $129,697 04.04.13 - $68,058 $68,058 $197,755 11.04.13 - $56,591 $56,591 $254,346 18.04.13 - $75,448 $75,448 $329,794 26.04.13 - $72, 111 $72, 111 $401,905 29.04.13 - $77,524 $77,524 $479,429 09.05.13 - $81,931 $81,931 $561,360 16.05.13 - $96,273 $96,273 $657,633 30.05.13 - $75,231 $75,231 $732,864 06.06.13 - $74,546 $74,546 $807,410 13.06.13 - $78,915 $78,915 $886,325 20.06.13 - $72,885 $72,885 $959,210 27.06.13 - $82,796 $82,796 $1,042,006 [14] Although more issues arise on the face of the pleadings, Mr Shaw has by his written submissions confined his argument. He does not dispute any of the details in the previous paragraph or the quantum of the penalties which, prima facie, flowed from them. He resists the application for summary judgment on only two bases: first, he argues that the penalties have been remitted by operation of law (s 269-30) and, second, he argues that he is entitled to rely on the defence that he either took all reasonable steps to ensure the Company complied with its obligations or there were no reasonable steps which could have been taken (s 269-35). [15] The question then becomes, by the application of well-known principles, whether I should form the view that either of these defences has any real prospects of succeeding: UCPR 292 and Coldham-Fussell v Commissioner of Taxation [2011] QCA 45. Has the penalty been remitted by operation of law? [16] Division 269 provides for remission of a director's penalty in certain circumstances. [17] Prior to 29 June 2012, s 269-30 of the Schedule provided that: A penalty of yours under this Division is remitted if the directors of the company stop being under the relevant obligation under section 269-15: (a) before the Commissioner gives you notice of the penalty under section 269-25; or (b) within 21 days after the Commissioner gives you notice of the penalty under that section. [18] Given that directors continue to be under the obligation until the Company complies with “its obligation”, or goes into administration or liquidation, the effect of the provision was that even though a director had been rendered liable for a penalty by operation of s 269-20, the penalty would be remitted by operation of law if the amount was paid or the company went into administration or liquidation within the time limits specified by subparagraphs (a) and (b). [19] If s 269-30 had stayed in this form then the defendant’s contention that the penalties had been remitted by operation of law would have been a good one because the Company commenced to be wound up on 3 October 2013 and the Commissioner did not give notice of penalty under s 269-25 until 21 January 2014. -- 6 of 14 -- 7 [20] However, an obvious weakness in the section was that if the Commissioner did not know that an amount had been withheld and was unpaid, the Commissioner would not have given notice and time would not have begun to run. An obvious way in which the Commissioner might end up not having the requisite knowledge would be if a company failed to comply with its reporting requirements, particularly those set out in s 16-150 (quoted at [8] above). [21] That weakness was addressed when s 269-30 was amended with effect from 30 June 2012. As amended, the section provides: (1) Subject to subsection (2), a penalty of yours under this Division is remitted if the directors of the company stop being under the relevant obligation under section 269-15: (a) before the Commissioner gives you notice of the penalty under section 269-25; or (b) within 21 days after the Commissioner gives you notice of the penalty under that section. (2) The following table has effect: When appointing administrator or winding up company does not affect penalty Item Column 1 If the company’s obligation is to pay to the Commissioner, on or before the due day … Column 2 and, because of paragraph 269- 15(2)(b) or (c) (an administrator is appointed or the company begins to be wound up), the directors stop being under the relevant obligation after the last day of the 3 months after … Column 3 subsection (1) does not apply … 1 an amount in accordance with Subdivision 16-B (obligation to pay withheld amounts to the Commis- sioner), the due day, to the extent the company does not, on or before the last day mentioned in column 2, notify the Commissioner under section 16-150 of the amount the company is obliged to pay. [22] The result is that the remission which might otherwise flow from the operation of s 269- 30(1) consequent upon a company going into administration or liquidation before notice of penalty was given, would not apply to the extent that the company had not on or before the last day of the 3 months after the due day notified “the Commissioner under section 16-150 of the amount the company is obliged to pay”. [23] The evident purpose of the amendment was to give a director the benefit of being able to obtain remission in the event that the company went into administration or liquidation within the time frame referred to in s 269-30(1), but only if – (a) the company had put the Commissioner in the position of knowing the requisite details, by notifying the Commissioner that the company was obliged to pay monies to the Commissioner in a particular amount; and (b) the company did so within the time frame specified in the section. [24] There are two aspects to this. [25] First, the notification must be of the amount the company is obliged to pay. In context that amount must be the amount which was withheld and which the Company was obliged to pay to the Commissioner on or before the due day as required by Division 16-B. If whatever is said to satisfy the requirement of notice does not actually notify of the amount the company is obliged to pay, it could not meet the requirement of the section. [26] Second, the notification must be notification “under section 16-150 of the amount the company is obliged to pay” rather than simply notification “of the amount the company is -- 7 of 14 -- 8 obliged to pay”. At first blush, the interpolation of the words “under section 16-150” seems to have been intended to pick up the requirement in s 16-150 that notice “must be in the approved form and lodged with the Commissioner”. As will appear, I do not find it necessary to express a conclusion on this point. [27] In this case the Company did begin to be wound up after the last day of 3 months after each of the relevant due days and that occurred before notices of penalty under s 269-25 were given. The result is that the remission which would otherwise have applied, does not apply to the extent that the Company had not on or before the last day of the 3 months after the due day notified the Commissioner under s 16-150 of the amount the Company was obliged to pay. The table below identifies the date by which notice had to be given if remission of penalty was to be obtained for each of the penalties concerned. Due day and amount to be paid by Company to Commissioner Amount of penalty at end of due day Date by which notice must be given if remission of penalty is to be obtained 21.03.13 - $61,479 $61,479 On or before 21.06.13 28.03.13 - $68,218 $68,218 On or before 28.06.13 04.04.13 - $68,058 $68,058 On or before 04.07.13 11.04.13 - $56,591 $56,591 On or before 11.07.13 18.04.13 - $75,448 $75,448 On or before 18.07.13 26.04.13 - $72,111 $72,111 On or before 26.07.13 29.04.13 - $77,524 $77,524 On or before 29.07.13 09.05.13 - $81,931 $81,931 On or before 09.08.13 16.05.13 - $96,273 $96,273 On or before 16.08.13 30.05.13 - $75,231 $75,231 On or before 30.08.13 06.06.13 - $74,546 $74,546 On or before 06.09.13 13.06.13 - $78,915 $78,915 On or before 13.09.13 20.06.13 - $72,885 $72,885 On or before 20.09.13 27.06.13 - $82,796 $82,796 On or before 27.09.13 [28] The defendant contends that the Company did give the Commissioner the requisite notice. He relies on – (a) the Company’s Business Activity statement (“BAS statement”) for the period 1 January to 31 March 2013 (which the Company lodged on 27 May 2013); and (b) the Company’s BAS statement for the period 1 April to 30 June 2013 (which the Company lodged on 3 September 2013). [29] I make the following observations as to the BAS statements: (a) Each statement reported amounts at label W1 for “salary, wages and other payments”. (b) Each document contained a space at label W2 where provision was made for identifying “Amt withheld from paymts shown at W1”. (c) If the Company had complied with the instructions set out in the Guide to which I have referred at [8](f), it would have reported and paid the amounts withheld from the amounts identified at W1 through the electronic payment process and not reported the amounts withheld, whether at label W2 or any other label. (d) However the Company did not pay the amounts withheld through the electronic payment process. Moreover, in the two BAS statements label W2 was not left incomplete. Rather, the company inserted a zero in each location. [30] I am unable to discern any arguable basis by which the BAS statements could be said to constitute notification to the Commissioner of the amount the Company was obliged to pay the Commissioner either at all or sufficient to obtain remission of any of the penalty amounts -- 8 of 14 -- 9 which I have identified in the table at [27]. Notification of the gross amount of payments for salary, wages and other payments from which payments are withheld simply does not amount to notification of the amounts which the Company is obliged to pay to the Commissioner. That is what s 269-30(2) requires and the BAS statements simply did not meet those requirements. [31] An attempt was made to argue that if one construes the BAS statements in the context in which no amounts are being paid by the Company to the Commissioner, notice of the fact and quantum of gross payments of salary, wages and other payments, would constitute notice to the Commissioner. The problem with this is it would notify the Commissioner that it is possible (perhaps even probable) that amounts had been withheld by the Company and not paid to the Commissioner, but that would still not amount to notice to the Commissioner of what those amounts were. That is what the statute requires. [32] The defendant seems to be contending that compliance with the Commissioner’s explicit requirements under the Guide must necessarily satisfy s 269-30(2). But there are a number of problems with this. First, the Guide was not directed to what is necessary to meet s 269- 30(2). Rather it was directed to how a company could comply with s 16-150. Second, even if it had been, it was explicit as to the manner by which reporting on amounts withheld would occur, namely by the use of the electronic payment system. The Guide said nothing about what a company should do to comply with its reporting obligation if the company was not actually going to pay the amounts it had withheld. Third, the Company did not comply with the Guide: rather than leave label W2 incomplete, it inserted a zero, thereby indicating (falsely) that no monies had been withheld. Finally, in order to establish the elements of the statutory defence the director must look to the statute, not to the Guide. The defendant expressly rejected any attempt to raise an estoppel against the operation of the statute. [33] The defendant pointed out that the legislation plainly contemplates that a company must notify of the amount it is obliged to pay the Commissioner, even if it is not going to pay the Commissioner. I agree. The defendant pointed out that the Guide does not explain to a company how the Commissioner wants notice to be given in those circumstances. I agree. The defendant pointed out that if there is no approved form, it might be difficult for someone in the defendant’s position to know what is necessary to comply with s 16-150 and, it would follow, s 269-30(2). I agree. But the problem for the defendant is that none of these matters avails the defendant. The Company did not even purport to give the Commissioner the requisite notification, namely notification of the amounts which were withheld and which the Company was obliged to pay to the Commissioner on or before the due day as required by Division 16-B. [34] For completeness I note that, if label W2 of the BAS statements had been completed in a way which had amounted to the requisite notification (or if the Company had given such notice in some other way), a more difficult question might have arisen as to whether the notification satisfied the additional requirement from s 269-30(2) that the notification be “under s 16-150”. I might then have had to resolve the question whether the intention of s 269-30(2) was to pick up the requirement in s 16-150 that notice “must be in the approved form and lodged with the Commissioner” and I might then have had to determine how to deal with the fact that there was no approved form. Certainly it seems to me to be clear that s 269-30(2) would not be construed in a way with which it was impossible to comply. I would be attracted to the proposition that “under s 16-150” would not be construed as imposing a condition of validity of a notice under s 269-30(2), with the result that a notice not in an approved form would be capable of being regarded as a compliant notice under s 269-30(2). It does not seem to me to be presently necessary to resolve those issues. -- 9 of 14 -- 10 Obviously, the Commissioner needs to amend its processes so that there is an approved form. In that way the problem will not arise. [35] Finally, I note that even if the BAS statements might otherwise have been compliant notices, they could not have been so regarded in respect of the penalties imposed in respect of the due days from 11 April to 30 May in the table at [27]. For each of those items, the second BAS statement was made after the last day of the 3 months after the due day. [36] The result is that I find that the defence that the penalties have been remitted by operation of law does not have any real prospect of succeeding. Does the s 269-35(2) defence have any real prospect of success? [37] Section 269-35 relevantly provides that: 269-35 Defences … 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, 4368 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 tor how long, you were a director and took part in the management of the company; and (b) all other relevant circumstances. [38] The “obligation” to which reference is made in s 269-35(2)(a)(i) is, relevantly, the obligation to pay withheld amounts to the Commissioner on or before the due day as required by Division 16-B. [39] Consistently with the explicit purpose of Division 269, namely that a company either meets its obligations under Division 16-B or goes promptly into voluntary administration or liquidation, the section provides a defence if a director takes all reasonable steps to achieve those goals or there were no reasonable steps which the director could have taken to ensure the achievement of those goals. [40] The approach which should be taken to the section was recently discussed by the Western Australia Court of Appeal in Roche v Deputy Commissioner of Taxation [2015] WASCA 196. In that case the Court dismissed an appeal from the decision of the master which found that a defendant had no arguable defence under s 269-35. The Court of Appeal followed and applied to s 269-35 the approach which the New South Wales Court of Appeal decision of Canty v Deputy Commissioner of Taxation (2005) 63 NSWLR 152 had taken to an earlier statutory analogue of s 269-35. Buss, Newnes and Murphy JJA observed as follows (emphasis added): (a) At [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 -- 10 of 14 -- 11 took all steps which were reasonable, having regard to the circumstances of which the director, acting reasonably, knew or ought to have known: see Deputy Commissioner of Taxation v Saunig (2002) 55 NSWLR 722; (2002) 43 ACSR 387 [25]. (b) At [34] to [35]: 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). 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. See, generally, Miller v Deputy Commissioner of Taxation (1997) 98 ATC 4059, 4063 - 4064 (Mason P, Beazley JA agreeing). (c) At [40]: In our respectful view, the master was correct to find that the appellant had no arguable defence to the claim. To establish a defence under s 269-35(2), the appellant was required to prove that from the time he came under the obligation in s 269-15 he took all reasonable steps to ensure that one of the s 269-35(2)(a) events occurred or that there were no reasonable steps that he could have taken to ensure that any of those events happened. The evidence, which, as the master observed, was conspicuous for its paucity, fell a long way short of that. … [41] The passage from Miller to which their Honours referred at [35] was to the following passage (emphasis added): The appellant submits that a director need only address one of the four options offered to the company by s 222APB(1), 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. In support of this contention, reference was made to s 222APB(1) where it speaks of the directors causing the company “to do at least one” of the four matters. I would reject this submission. What the directors have to do to comply with s 222APB(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: see s 222APB(2). 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. The alternative construction would mean that if it were reasonable not to cause the company to pay the estimate to the Commissioner (option (a)) because the company were hopelessly insolvent, the director could sit on his or her hands yet still make out the “defence”. That would be absurd, and would defeat the purpose spelled out explicitly in s 222ANA(1) and (2). [42] Mr Shaw’s defence seemed to reveal an intention to rely on s 269-35. The relevant paragraphs were as follows: As to paragraph 7 of the plaintiff’s statement of claim, the defendant denies that he was under the obligations pursuant to section 269-15 … by reason of his office as a director of the company continuously for the period 13 March 2013 to 27 June 2013 and says that: (a) in reliance on paragraph 2(b) herein, he took all reasonable steps to ensure the company complied with its obligations, in the circumstances, which gives rise to a defence to the plaintiff’s claim pursuant to section 269-35(2)(a)(i) …; or (b) in the alternative says, in reliance on paragraph 2(b) herein, there were no reasonable steps that he could have taken to ensure that any of the things set out in section 269-35(2)(a) … happened, which gives rise to a defence to the plaintiff's claim pursuant to section 269-35(2)(b) … . [43] As to this: (a) First, s 269-35(2) is a defence to the penalty imposed by s 269-20, not the obligation imposed by s 269-15 (which is the obligation of a director to ensure the Company complies with its obligations). -- 11 of 14 -- 12 (b) Second, the pleaded “reliance on paragraph 2(b)” is a pleaded reliance on matters which have nothing whatever to do with ensuring the company complied with its obligation to pay amounts withheld, but have to do with the steps the Company took in purported compliance with its obligation to give notice. (c) Third, the plea is nothing more than a rolled up plea of a conclusion, rather than a pleading of material facts which justify a conclusion. (d) The result is that the only view which can be reached of the pleaded reliance on s 269- 35(2) is that the pleading is utterly inadequate. It does not provide any basis for thinking that the defence has any real prospect of success. [44] Particulars and affidavit evidence were delivered which reveal a case other than that which was pleaded in the amended defence. It therefore becomes necessary to look at that material to consider whether there is any reason to believe that the defendant has any real prospect of successfully relying on s 269-35(2). It will suffice to examine the affidavit of Mr Shaw. The relevant parts of the affidavit are as follows (emphasis added), the references to “STL” being references to the Company and the references to “STC” being references to a related company: 4. STL was a large withholder with the Australian Taxation Office (“the ATO”) pursuant to the terms of Part 16, Schedule 1 of the Taxation Administration Act 1953. 5. STL paid varying amounts to the ATO electronically on a weekly basis. 6. The varying amounts paid by STL to the ATO were based on the PAYG amounts withheld for the preceding pay period. 7. An annual return was lodged by STL and was assessed against the weekly contributions made by STL. STL either “topped up” the amount required to be paid or was entitled to a refund of any overpayment. 8. On or about 22 February 2013, an Administrator was appointed to STC (“the Appointment”). The appointment was precipitated by defaults with STC's financer and its ability to pay immediate debts. 9. Prior to the Appointment, STC entered into a sale agreement with an unrelated entity, however the sale contract was not completed prior to the Appointment. 10. St George Bank held the first ranking registered security interest over STC. This was held for a debtor factoring facility and other motor vehicle and equipment finance facilities. 11. STL was an operating company which met all its commitments, was compliant with all of the ATO lodgements and never defaulted on payment plans. 12. A registered charge over STL was also held by St George Bank in relation to the STC loans and a debtor factoring facility which STL also used for its operations. The State Wide Group had a limit of $6,000,000.00 in place, however the State Wide Group entities could transfer the limit between them as the operating requirements demanded. 13. Originally the State Wide Group facility was allocated as follows: a. STC - $3,500,000.00 b. STL - $2,000,000.00 c. State Wide Construction Services - $500,000.00 14. At the time STC went into Voluntary Administration, the limits were: a. STC - $4,250,000.00 b. STL - $1,500,000.00 c. State Wide Construction Services - $250,000.00 15. On or about 28 February 2013, I contacted my relationship manager at St George Bank, requesting an increase in the limit by $1,000,000.00 for STL to cover normal business operations (“the Request”). -- 12 of 14 -- 13 16. On or about 1 March 2013 I received a response from St George Bank advising that the Request was being referred to the credit manager of St George Bank. 17. Between on or about 1 March 2013 and 12 March 2013, I made telephone calls to St George Bank to follow up on a response to my Request. 18. On or about 12 March 2013, I received a response from Craig Moore of St George Bank advising that St George Bank was unable to extend any further support by way of further advances or reallocation of limits, primarily due to the events and defaults of the STC entity. The available limit for STL was to the limit it had at the time, being $1,500,000.00, which was insufficient to operate the business. 19. On or about 21 March 2013, I engaged a specialist business consultancy firm, De Jonge Read, for advice and to assist with negotiations with St George Bank. Despite negotiations and numerous requests, St George would not reconsider the Request. 20. On or about April 2013, debtor factoring companies, Bibby and Scottish Pacific, were approached by De Jonge Read to refinance the St George Bank facility. Funding approval was received from both financers in or around early May 2013; each approving a facility for $2,500,000.00. While STL had been having difficulty meeting its cash flow operational requirements, the increased facility approval resulted in expectations that STL could meet its obligations in the near future and buoyant ongoing trading would ensure future outgoing payments could be met. 21. Between on or about May 2013 to June 2013, discussions took place with St George Bank for settlement of the debtor factoring facility in the name of STL. 22. On or about 2 July 2013, I had telephone discussions with a representative of de Jonge Read who advised that St George Bank had contacted them and stated that the Bank would not be prepared to settle on refinance of STL debtor finance facility until the sale of STC took place. 23. The settlement of the STC sale did not occur until 2 August 2013. 24. On or about 20 September 2013, settlement of STL debtor finance facility was effected with St George Bank, however by this stage it was considered too late to be of benefit STL. 25. On or about 4 October 2013, STL was placed into liquidation. [45] I accept the Commissioner’s submission that the essence of the case in the evidence (and in the particulars), is, in effect, that the defendant tried to ensure that the Company could obtain funding to meet its obligations but was unsuccessful. [46] The problem with that case is that the defendant’s evidence – like the evidence in Roche – falls a long way short of establishing an arguable case that the defendant took all reasonable steps to ensure that one of the s 269-35(2)(a) events occurred or that there were no reasonable steps that he could have taken to ensure that any of those events happened. There was no evidence indicating that each option was 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. [47] The fact of the matter is that by 12 March 2013 the Company had insufficient funds to operate its business. From 21 March 2013, the Company was failing to meet its obligation to pay very substantial sums to the Commissioner. The unmet liability was increasing week by week over a period of 3 months. The Company obviously did not have sufficient funds to operate its business, let alone to meet its obligation to the Commissioner. [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 (see Shaw at paragraph 20, quoted at [44] above), it was at the highest level of generality and there was no real evidence of the foundation of the expectation as might -- 13 of 14 -- 14 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. Conclusion [51] In view of the conclusions I have reached, it is not necessary to consider the various pleading complaints advanced by the Commissioner. [52] In each proceeding, there should be judgment in favour of the Commissioner and the defendant should pay the Commissioner’s costs of and incidental to the proceeding, including the application for summary judgment, to be assessed on the standard basis. I direct the Commissioner to bring in minutes of an order in each proceeding, reflecting those conclusions. -- 14 of 14 --