Deputy Commissioner of Taxation v Keane [2014] QDC 286

DISTRICT COURT OF QUEENSLAND CITATION: Deputy Commissioner of Taxation v Keane [2014] QDC 286 PARTIES: DEPUTY COMMISSIONER OF TAXATION (plaintiff) v LYLE KEANE (defendant) FILE NO/S: BD3899/12 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: District Court of Queensland DELIVERED ON: 12 December 2014 DELIVERED AT: Brisbane HEARING DATE: 16 October, 2014 JUDGE: Kingham DCJ ORDER: 1. Mr Keane must pay the Deputy Commissioner of Taxation the sum of $274,018.40 plus interest calculated at the rate of 6.5% from 12 September 2012 until today. 2. Mr Keane must pay the Deputy Commissioner of Taxation’s costs of this application and these proceedings. CATCHWORDS: CIVIL – TAXATION – PAYMENT OF AMOUNTS WITHELD – PLAINTIFFAPPLICATION FOR SUMMARY JUDGMENT - where prima facie case against the defendant established CIVIL – TAXATION – PAYMENT OF AMOUNTS WITHELD – PLAINTIFF APPLICATION FOR SUMMARY JUDGMENT – parallel liability – joint and several liability – where defendant argued remission of wife’s liability discharged his liability – where defendant raised defence of taking reasonable steps – where defendant has no reasonable prospects of successfully defending the claim COUNSEL: Mr M Lyons for the applicant The respondent was self-represented SOLICITORS: Australian Taxation Office for the applicant -- 1 of 16 -- 2 [1] The Deputy Commissioner of Taxation asks for summary judgment against Lyle Keane for director penalties arising from the unpaid PAYG liabilities of a company. The Court may give summary judgment if satisfied Mr Keane has no real prospect of successfully defending the proceedings and there is no need for a trial of the claim or part of it.1 [2] The Court’s power to enter summary judgment is exercised in the context of the overriding purpose of the Uniform Civil Procedure Rules 1999 to facilitate the just and expeditious resolution of the matter in dispute.2 A real prospect of success is realistic not fanciful.3 Once a prima facie case has been made out, the onus shifts to the defendant to produce evidence to raise a real prospect of defence or to demonstrate the need for a trial or the claim or part of it. [3] The Deputy Commissioner’s material establishes a prima facie case. [4] Mr Keane has not contested most of the material facts relied upon by the Deputy Commissioner. He accepts the company failed to pay amounts withheld from employee’s salaries on dates during his directorship.4 The Deputy Commissioner gave the requisite notice before commencing proceedings.5 1 Uniform Civil Procedure Rules 1999, r 292. 2 Uniform Civil Procedure Rules 1999 R5; Coldham-Fussell v Commissioner of Taxation [2011] QCA 45 at [101] 3 Coldham-Fussell v Commissioner of Taxation [2011] QCA 45 at [98] – [100] 4 Transcript page 54 line 37 – page 55 line 8 5 Section 269.25, Sch 1, Taxation Administration Act 1953. -- 2 of 16 -- 3 [5] The sum claimed for directors’ penalties in relation to unpaid PAYG liabilities is $280,673.00.6 The amount said to be outstanding is $274,018.40,7 which takes into account a tax refund due to Mr Keane. [6] Although he accepts the method of calculating the amount claimed, Mr Keane argues the figures on which the calculations are based show him receiving amounts by way of salary which he says he did not receive.8 [7] That came by way of submission and there is no evidence from Mr Keane about that. The Deputy Commissioner’s claim is based on amounts notified by the company.9 Mr Keane’s submission does not raise a real prospect of defence on this basis. [8] His submissions raise two propositions that must be considered on the application for summary judgment: (a) The company’s liability, and therefore Mr Keane’s personal liability, was discharged by the remission of the liability of his wife, who took over from his as director; and (b) Taking into account Mr Keane’s diagnosis of an autism spectrum disorder, he took all reasonable steps to ensure that the directors complied with their obligations. [9] The second proposition rests on evidence led by Mr Keane about his condition. The Deputy Commissioner objects to some of that, but argues the objections do 6 The Statement of Claim had included cause of action in respect of Mr Keane’s RBA deficit debt but those debts have since been discharged. First affidavit of James Foster at [30]. 7 Affidavit of Robyn Bond. 8 Transcript page 56, lines 15 – 33. 9 First Affidavit of James Foster. -- 3 of 16 -- 4 not need to be determined unless the application for summary judgment is refused. At its highest, the Deputy Commissioner argues the evidence does not raise a real prospect of defence. 1. Did the remission of Mrs Keane’s liability discharge Mr Keane’s liability? [10] Mr Keane resigned as a director and his wife was appointed in his place, effective from 13 January 2012.10 All the due dates relating to this claim occurred before then. [11] On 25 January 2012 the company first notified the Commissioner of the amounts withheld from employees’ salaries for the relevant dates.11 On 28 August 2012 administrators were appointed to the company.12 These dates are important as they affect when a liability arises and when a directors’ penalty will be remitted. [12] A company director bears personal liability by way of a director’s penalty for certain corporate obligations under the Tax Law. This claim spans changes to the tax regime which came into effect on 1 July 2010. For amounts due by the company before that date, Pt 4 of Div 9 of the Income Tax Assessment Act 1936 applies. For amounts due on or after 1 July 2010, the Taxation Administration Act 1953, Division 12 of Schedule 1 applies. [13] The amendments changed the circumstances in which a director’s penalty is remitted. That is explored later in these reasons. Otherwise, a director’s penalty payable under the ITAA at the time of the amendments remained payable under the 10 First affidavit of James Foster, Exhibit JF-3, p 60. 11 First affidavit of James Foster, Paragraph 27, Exhibit JF-4, pp 64-82. 12 First affidavit of Foster, Exhibit JF-3, p 61. -- 4 of 16 -- 5 TAA.13 There are some minor changes in terminology which do not appear to relevantly affect the concepts that apply in this case, regardless of when the liability arose. [14] A director is under an obligation to ensure the company pays the Commissioner amounts withheld for various purposes, including PAYG taxation on employees’ income. The obligation arises from the day the amount is withheld (the initial day14) until one of the following events occurs: the amount withheld is paid; or an administrator is appointed to the company; or the company begins to be wound up.15 [15] The director is exposed to a penalty if at the end of a due day,16 the directors of the company were still under that obligation and the director personally was under that obligation at or before the end of the due day, because he or she was a director.17 The director’s penalty is equal to the amount unpaid to the Commissioner.18 [16] Mr Keane was a director at the end of the relevant due days. The penalties claimed by the Deputy Commissioner were due and payable at the end of those due days.19 Subject to the credits applied as described in the affidavits of Mr Foster and Ms Bond, the amounts claimed remain unpaid. [17] The provisions governing remission of a director’s penalty for withheld amounts changed from 30 June 2012. Prior to that date, a director’s penalty was remitted if 13 Tax Law Amendment (Transfer of Provisions) Act 2010 Schedule 1, Part 3, sub-item 65(4) 14 Income Tax Assessment Act 1936 s222AOA (2)(b); Taxation Administration Act 1953 s269-10 15 Income Tax Assessment Act 1936 s222AOB (1); Taxation Administration Act 1953 s269-15 16 Income Tax Assessment Act 1936 s222AOB(3); Taxation Administration Act 1953 s269-10 17 Income Tax Assessment Act 1936 s222AOC; Taxation Administration Act 1953 s269-20(1) 18 Income Tax Assessment Act 1936 s222AOC(2); Taxation Administration Act 1953 s269-20(5) 19 Income Tax Assessment Act 1936 s222AOB (3); Taxation Administration Act 1953 s269-20(2) -- 5 of 16 -- 6 the company was placed into voluntary administration within 21 days of the Commissioner giving notice of intention to recover the penalty.20 If that provision governed Mr Keane’s liability, his penalty would have been remitted because the company was placed in administration within 21 days of the Commissioner’s notice. [18] However, the relevant provision now only remits the penalty upon administration to those amounts that the company has notified to the Commissioner within three months of the due day.21 The Commissioner was not notified of the amounts withheld until 25 January 2012, a period greater than three months after even the last due day (25 August 2011). [19] It is the current form of s269-30 which governs Mr Keane’s penalty. 22 Accordingly, the appointment of an administrator could not remit Mr Keane’s penalty. [20] Mrs Keane’s position is different. She did not become subject to the director’s obligation until she was appointed a director (13 January 2012).23 The penalty was due and payable at the end of 30 days after her appointment.24 The remission applied to any amounts notified by the company to the Commissioner within 3 months of her appointment.25 As the company notified the amounts claimed by 25 January 2012, well within 3 months of her appointment, Mrs Keane’s penalty was remitted. 20 Taxation Administration Act 1953 s269-30 21 Taxation Administration Act 1953 s269-30(1)&(2) 22 Deputy Commissioner of Taxation v Roche [2014] WASC 222 23 Taxation Administration Act 1953 s269-20(3) 24 Taxation Administration Act 1953 s269-20(4) 25 Taxation Administration Act 1953 s269-30(2)&(3) -- 6 of 16 -- 7 [21] Mr Keane argues the liability of the company and its directors is parallel and joint and several, with the effect that the remission of Mrs Keane’s penalty discharged both the company’s and his liability. [22] This argument cannot be sustained when one applies the ordinary meaning of the clear words of the relevant provisions. For those amounts that became due before 1 July 2010, the ITAA describes the liabilities of the directors and the company as parallel liabilities.26 Although Mr Keane argued that I should refer to an ATO Practice Statement to discern the meaning of parallel liability, its meaning is clarified by the Act. It provides that this means that an amount paid or applied towards discharging one of the parallel liabilities discharges the others to the same extent.27 [23] The term parallel liabilities does not appear in the equivalent provision in the TAA.28 This applies to those amounts which were due on or after 1 July 2010. Nevertheless, s269-40 also uses the concept of an amount paid or applied. That is consistent with the amount of the director’s penalty being equal to the amount unpaid,29 and a director who does make a payment having a right of indemnity, subrogation or contribution against the company or any other director who is liable.30 [24] Mr Keane argued that the remission of Mrs Keane’s penalty was an application of the full amount to the Commissioner. This argument rests on the recording in a Running Balance Account held by the ATO against Mrs Keane’s name that remits 26 Income Tax Assessment Act 1936 s222AOH (1) 27 Income Tax Assessment Act 1936 s222AOH (2) 28 Taxation Administration Act 1953 s269-40 29 Income Tax Assessment Act 1936 s222AOC; Taxation Administration Act 1953 s269-20(5) 30 Income Tax Assessment Act 1936 s222AOI; Taxation Administration Act 1953 s269-45 -- 7 of 16 -- 8 or discharges that liability. I reject an entry in an accounting record demonstrates amounts have been paid or applied to the Commissioner. What is required is a payment of money to the Commissioner.31 [25] Although Mr Keane says the Commissioner uses the term discharge and remission interchangeably, there is an important distinction that he has failed to acknowledge in his submissions. That distinction is between fulfilling an obligation (by paying it in full) and being relieved of the personal liability for meeting that obligation. Mrs Keane did not fulfil the underlying obligation of the company, upon which Mr Keane’s personal liability rests. She did not make any payments to the Commissioner. Rather, because of the actions she took shortly after assuming a personal liability, she has been relieved of her personal liability for the corporate obligation. Her actions did not, though, affect the underlying corporate liability, or, as a result, Mr Keane’s personal liability. [26] The personal nature of a director’s remission is clear from the words in s269-30 “a penalty of yours...is remitted”. Mrs Keane’s penalty was remitted, for reasons that apply to her only, and not to Mr Keane. In the absence of a payment of money to the Commissioner, the remission of Mrs Keane’s penalty did not reduce or discharge Mr Keane’s personal liability to the Commissioner. 2. Is there a real prospect of a reasonable steps defence succeeding if the claim? [27] Although Mr Keane initially raised a potential defence under s269-35(1) based on his illness, as I understood his oral and supplementary written submissions, he 31 Eaton v Deputy Commissioner of Taxation (2006) 67 NSWLR 205, 213. -- 8 of 16 -- 9 concedes the defence is not open. Instead he argues he took reasonable steps taking into account his diagnosis of Autism Spectrum Disorder. [28] That section provides, relevantly: (2) You are not liable to a penalty …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…; (iii) the directors caused the company to begin to be wound up…;… (3) In determining what are reasonable steps for the purposes of subsection (2), have regard to: … (b) any other relevant circumstances. (my emphasis added) [29] Mr Keane’s argument is that the reasonableness of the steps he took should be assessed with regard to his autism spectrum disorder, which he described as a lifelong developmental disorder, known to cause difficulties with executive function and clinically significant impairment in social, occupational or other important areas of functioning. [30] He has pleaded that “as soon as possible after the importance of proper management was made clear to the Defendant he took all possible steps to ensure that a suitable director was installed to correct the Company’s position.”32 The particulars might be summarised in this way: (a) his awareness of the importance of proper company management arose between late October 2011 and 13 January 2012; (b) he subsequently sought professional advice; 32 Amended Defence at [29.2] -- 9 of 16 -- 10 (c) he resigned as a director so his wife could take over. [31] The defence and particulars do not identify reasonable steps by reference to the entire period that is relevant to the claim – from 1 July 2009 (the earliest deduction day) to 28 August 2012 when the administrators were appointed to the company.33. [32] Making allowances for Mr Keane as a litigant in person, the evidence does not take matters very far. The evidence of Mr Keane’s condition is exceedingly thin, given Judge Noud adjourned the hearing after substantial argument about the evidence of Mr Keane’s condition. He has, therefore, had ample opportunity to put proper material before the court about his condition and its impact during the subject period, assuming, of course, that it is a relevant circumstance for the purpose of the defence. It is reasonable to assume the evidence now before the court is what might be led were the matter to proceed to trial. [33] The only expert evidence came from Dr Sindiea Madan, a Clinical Psychologist, who interviewed Mr Keane over two sessions in the company of his wife. Dr Madan observed that he has difficulties with social reasoning, communication and emotional regulation, together with a pattern of rigid thinking, restricted interests and various sensory hypersensitivities. She opined that he meets the criteria for a diagnosis of Autism Spectrum Disorder. [34] The rest of the letter refers in general terms to the challenges of ASD, but does not assist in determining how or to what extent the condition may have affected Mr Keane during the relevant period. In fact, Dr Madan noted that persons with ADS 33 Deputy Commissioner of Taxation v Coco (2003) 179 FLR 362 at [49] -- 10 of 16 -- 11 can have high intelligence, excellent long term memory, sound analytical and logical thinking, visual processing and mechanical skills. Further affidavit material from Mr Keane and members of his family about his general functioning do not take the matter any further. [35] Dr Madan’s letter does not establish Mr Keane was not capable of seeking out, understanding and acting upon information relevant to his liability as a director of a company that was withholding amounts from an employee’s salary. [36] That is not surprising given the evidence from officers of the Australian Taxation Office about Mr Keane’s active management of this and other corporate entities and, more pertinently, about his dealings with the Commissioner’s office during the relevant period. [37] In his second affidavit, James Foster, an employee of the ATO attests to various documents relating to the company which nominated Mr Keane as the contact person or in some cases appear to have been signed by Mr Keane. In his third affidavit, Mr Foster attaches ATO records which are notes of conversations between representatives of the ATO and Mr Keane which occurred on 25 March, 15 April, 17 June, 16 November and 1 December 2009; and 27 June 2011, all of which occurred during the period in which payments to the Commissioner fell due. [38] It is not a question of the reasonableness of Mr Keane’s actions once he was diagnosed. Assuming his ASD was a relevant circumstance, Mr Keane would need to demonstrate what steps he took to ensure compliance and why those steps he did take were reasonable, assessed over the entire period, given his condition. -- 11 of 16 -- 12 By focussing only on what he did as he gained an awareness of his condition and, he said, of the company’s liability, he has failed to address the relevant question. [39] Given his pleadings, and accepting the evidence, such as it is, about his ASD, I am not persuaded Mr Keane has a real prospect of establishing a reasonable steps defence. He has not demonstrated he has an arguable case that, because of his condition, his failure to take any steps prior to late 2011 was reasonable. [40] Quite apart from my conclusion on the pleadings and evidence, the Deputy Commissioner argues that his condition is not a relevant circumstance and cannot be considered when considering the defence. Ultimately my decision is unaffected by the conclusions on the argument about the interaction of the two defences in s269-35. Nevertheless, in case it is relevant at a different stage of these proceedings, I will briefly state my conclusions on the Deputy Commissioner’s submissions. [41] The starting point for interpreting the defence must be the ordinary meaning of the words in the context of the purpose of the provision. The purpose of directors’ penalties is to ensure that corporate employers carry out their obligation to collect and remit tax.34 The declared purpose of Division 269 of Schedule 1 to the TAA in which the defence appears: The directors of a company have a duty to ensure that the company either : (a) meets its obligations under Subdivision 16-B (obligation to pay withheld amounts to the Commissioner) and Division 268 in this Schedule and Part 3 of the Superannuation Guarantee (Administration) Act 1992 (obligation to pay superannuation guarantee charge); or 34 Deputy Commissioner of Taxation v Woodhams (2000) CLR 370, 376 - 377. -- 12 of 16 -- 13 (b) goes promptly into voluntary administration under the Corporations Act 2001 or into liquidation. The directors’ duties are enforced by penalties. [42] The evident purpose of personal liability for corporate obligations is to improve accountability and enhance the prospects that the legislations’ objectives will be met. A corporation can only acts (or not act) through its directors and other human agents. Imposing personal liability on a director through directors’ penalties which equate to unmet corporate liabilities, expresses the intention that those tasked with responsibility for managing the affairs of a corporation are exposed to the legal ramifications of their actions (or inactions) in the name of the company. [43] The defence is open if a director has taken reasonable steps to ensure the company does one of the things specified in the defence. Given reasonableness is a relative concept, it must be judged by reference to a standard.35 Presumably, the standard would be that required of a competent director seeking to act reasonably in accordance with his or her duties. [44] A circumstance could only be a relevant circumstance if it is relevant to the primary enquiry, the reasonableness of steps taken by the director, as judged against an objective standard of a competent director. This does not mean, necessarily, that personal circumstances cannot be taken into account, and I did not understand the Deputy Commissioner to be arguing that they could not. [45] It seems to me that the Deputy Commissioner’s arguments about the application of the defence to Mr Keane’s case can be reduced to two propositions: 35 Opera House Investments Pty Ltd v Devon Buildings Pty Ltd (1936) 55 CLR 110 -- 13 of 16 -- 14 (a) That Mr Keane relies on ASD only as it relates to his awareness of his and the company’s obligations to remit amounts withheld; which is irrelevant as it goes only to the question of his knowledge. (b) That any consideration of a condition such as ASD is excluded by the specific defence for illness provided by s269-35(1). [46] The first proposition rests on the assertion that the authorities establish that this is an obligation which, objectively speaking, all directors should know. In Deputy Commissioner of Traxation v Saurig Heydon JA stated “Mr Saurig’s conduct must be judged not only by a reference to what he knew but what he ought to have known.”36 To the extent that Mr Keane’s reliance rests on his condition preventing him from being aware of his obligations, I accept the defence of reasonable steps is not open. [47] The second proposition is more problematic. Mr Keane argues ASD is not an illness, but a lifelong condition or impairment. Assuming, however, that it is falls within the term illness, the Deputy Commissioner argued that to consider ASD a relevant circumstance would be to import the concept of illness from one defence into another. The argument about importing concepts from one defence to another is strained. The real issue is whether the term relevant circumstance in the reasonable steps defence should be read as relevant circumstance other than illness, because of the defence afforded by s269-35(1). [48] The Deputy Commissioner’s argument assumes the defence in s269-35(1) covers the field for issues related to illness. The words used for both defences do not say 36 Deputy Commissioner of Taxation v Saurig (2002) 55 NSWLR 722 at [28] -- 14 of 16 -- 15 so expressly. I am not persuaded that it is necessary to interpret them that way in order to achieve the purpose of the legislation. [49] Interpreting a provision must start with the words of the provision itself. The context and purpose are relevant because the “primary objective of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute.”37 [50] Although the subheading for the defence in s269-35(1) is illness, the defence itself is not so confined. It deals with the failure of a director to participate in the management of the company. It applies only where a director did not and could not be expected to participate, because of illness or some other good reason. On one view, and, I consider the better view, the relevant limitation is the circumstances in which a director can escape liability because they did not take an active part in a company’s management, rather than limiting the scope for considering illness in defence to a director’s penalty. [51] The inclusion of the alternative some other good reason is helpful in interpreting its meaning. It considerably expands the scope of the defence. Logically, if the Deputy Commissioner’s argument about illness is correct, then not only illness, but, also, anything else that qualifies as some other ground would not be a relevant circumstance for the reasonable steps defence. [52] Were the only issue whether Mr Keane’s ASD could be considered as a relevant circumstance for the reasonable steps defence, I would find there was a triable issue and refuse the application. 37 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 -- 15 of 16 -- 16 [53] However, the Deputy Commissioner has established a prima facie case against Mr Keane. He has no real prospect of establishing that his liability was discharged by the remission of Mrs Keane’s director’s penalty. Further, given his defence, as particularised, and the evidence led in support of it, I find Mr Keane has no real prospect of establishing the reasonable steps defence. I find there is no need for a trial of the claim or part of it. Accordingly, I order: 1. Mr Keane must pay the Deputy Commissioner of Taxation the sum of $274,018.40 plus interest calculated at the rate of 6.5% from 12 September 2012 until today. 2. Mr Keane must pay the Deputy Commissioner of Taxation’s costs of and incidental to this application and these proceedings. -- 16 of 16 --