Deputy Commissioner of Taxation v Dugdale [2003] QDC 210

DISTRICT COURT OF QUEENSLAND CITATION: Deputy Commissioner of Taxation v J Dugdale Deputy Commissioner of Taxation v D Dugdale [2003] QDC 210 PARTIES: DEPUTY COMMISSIONER OF TAXATION Applicant/Plaintiff v JEANETTE DUGDALE Respondent/Defendant DEPUTY COMMISSIONER OF TAXATION Applicant/Plaintiff v DARRELL DEAN DUGDALE Respondent/Defendant FILE NO/S: 1259 of 2002; 1260 of 2002 DIVISION: Civil PROCEEDING: Applications ORIGINATING COURT: District Court, Brisbane DELIVERED ON: 16 July 2003 DELIVERED AT: Brisbane HEARING DATE: 29 April 2003 JUDGE: Shanahan DCJ ORDER: Each application is dismissed CATCHWORDS: SUMMARY JUDGMENT – application by plaintiff pursuant to r 292 UCPR – principles to be applied SERVICE OF DIRECTOR PENALTY NOTICE – where notices were purported to be served under s 222AOE of the Income Tax Assessment Act 1936 (Cth) in relation to unpaid PAYE deductions – where Director Penalty Notices were sent by post to the correct residential address – where notices were not returned to the plaintiff as being undelivered – reliability of the postal system – distinction between non-receipt and non-delivery – onus of proof – whether evidence of non- receipt is relevant in establishing non-delivery Cases cited: Bernstrom v National Australia Bank Limited [2003] 1 Qd R 469 -- 1 of 13 -- 2 Deputy Commissioner of Taxation v Gruber (1998) 43 NSWLR 271 Fancourt & Anor v Mercantile Credits Limited (1983) 154 CLR 87 Lane Cove Council v Geebung Polo Club Pty Ltd (Green as liq) and Others (No 2) (2002) 41 ACSR 15 Murphy v Teakbridge Pty Ltd [1999] NSWSC 1231 Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq) [2003] 1 Qd R 259 Statutes cited: Acts Interpretation Act 1901 (Cth), s 29(1) Income Tax Assessment Act 1936 (Cth), ss 222AOB, 222AOC, 222AOE, 222AOF(1), 222AOG Uniform Civil Procedure Rules, r 292 COUNSEL: Mr P A Looney for the applicant Mr D W Marks for the respondents SOLICITORS: Australian Tax Office for the applicant O’Shea Corser & Wadley for the respondents [1] The applicant/plaintiff seeks summary judgment against each of the respondent/defendants pursuant to r.292 UCPR on the basis that each defendant has no real prospect of successfully defending the plaintiff’s claim and that there is no need for a trial of the matter. [2] In relation to the applications counsel have agreed that the facts in each case are almost identical and that the applications should be determined together. Counsel have also resolved that the applications depend on the resolution of one issue which is a question of whether relevant notices under the Income Tax Assessment Act 1936 (Cth) (the “Act”) were served. [3] The Claim and Statement of Claim against each defendant relate to director penalties equal to the unpaid amounts of Pay As You Earn deductions made by a company from its employees wages for the period 1 October 1995 – 30 September 1998. Each defendant was at all material times a director of the company. [4] The plaintiff contends that each defendant has not complied with s 222AOB of the Act and, pursuant to s 222AOC of the Act, each is liable to pay a penalty equal to the unpaid amounts of the company’s liability. -- 2 of 13 -- 3 [5] Pursuant to s 222AOE of the Act, the Commissioner is not entitled to recover a director penalty liability until the end of 14 days after the Commissioner has given the director a Director Penalty Notice (DPN). If, within that time, the company pays the amount due, enters into an agreement regarding the liability or is placed in administration or wound up, the penalty is remitted pursuant to s 222AOG of the Act. [6] Section 222AOF(1) of the Act provides, “If it appears from ASIC documents that a person is, or has been within the last seven days, a director of a company, the Commissioner may give the person a notice under s 222AOE by leaving it at, or sending it by post to, an address that appears from such documents to be, or to have been within the last seven days, the person’s place of residence or business.” [7] Section 29(1) of the Acts Interpretation Act 1901 (Cth) provides, “Where an Act authorises or requires any document to be served by post, whether the expression ‘serve’ or the expression ‘give’ or ‘send’ or any other expression is used, then unless the contrary intention appears the service shall be deemed to be effected by properly addressing prepaying and posting the document as a letter, and unless the contrary is proved to have been effected at the time at which the letter would be delivered in the ordinary course of post.” History of the matter [8] Each defendant was a director of the subject company during the relevant time periods. The company made PAYE deductions for the purposes of the Act. The plaintiff alleges that s 222AOB of the Act was not complied with in relation to those deductions made in the period 1 October 1995 to 30 September 1998. The total of those deductions was $192,397.85. The company made payments of $5,287.68 in relation to that liability. The balance of $187,110.17 was payable by each defendant as a director penalty pursuant to s 222AOC of the Act. Each defendant denies liability on the basis that the plaintiff had not given to the defendants any notice pursuant to s 222AOE of the Act. [9] The plaintiff asserts that notices pursuant to s 222AOE were posted on 27 November 1998 to each defendant’s residential address as it appeared on ASIC -- 3 of 13 -- 4 databases (affidavit of P Dickinson). Neither of the notices were returned to the office of the plaintiff (affidavit of T K Boyle). [10] The defendants assert that the notices were not received by either of them (affidavits of J Dugdale and D Dugdale). [11] The defendants further assert that in September 1998 they instructed an accountant to inform the plaintiff that the company had failed to remit the PAYE deductions. The accountant had later informed the defendants that an agreement had been made with the plaintiff’s responsible officer (Dickinson) for the company to pay $3,000 per month off the arrears as long as the company remitted all future deductions to the plaintiff on time. This was a short term arrangement to allow the company to raise funds to pay the arrears (affidavit of J Dugdale). [12] The defendants further assert that the plaintiff supplied a booklet of remittance forms that were required to be posted with the payments (affidavit of J Dugdale). [13] The defendants further assert that in December 1998 the company received a letter from the plaintiff dated 30 November 1998 (Exhibit JD1). That letter indicated that the plaintiff would accept three payments of $3,000 on specified dates. The letter also required the company to contact the plaintiff by February 1999 to discuss finalisation of its account. [14] In February 1999 the company obtained a further booklet of remittance forms from the plaintiff and continued to make monthly payments of $3,000 (affidavit of J Dugdale). The final payment was made on 28 April 1999. [15] The defendants assert that shortly after 27 April 1999 each received in the mail a Director Penalty Notice dated 27 April 1999 with respect to the period 1 December 1998 to 31 December 1998 (affidavit of J Dugdale; document JD2). At about the same time each received a statutory demand from the plaintiff in respect to the personal liability which was said to have arisen as a result of the November 1998 director penalty notices. -- 4 of 13 -- 5 [16] The defendants assert that they then sought advice from their accountant and on 18 May 1999 an administrator was appointed to the company (affidavits of J Dugdale and D Dugdale). [17] The defendants assert that during all relevant times they resided at the residential address to which the 27 November notices were posted. That address was on acreage. There was a letterbox on the front alignment of the property next to the highway. It was clearly visible from the street and regularly used by the postman. The letterbox was of adequate size and letters placed in it could not fall out or be blown out by the wind. There was a system of clearing the letterbox on a daily basis and all mail delivered would have come to the attention of one of the defendants (affidavits of J Dugdale and D Dugdale). The application [18] The plaintiff submitted that service by post had been proved in relation to the November 1998 DPNs to satisfy the terms of s 222AOF(1) and s 29 Acts Interpretation Act 1901. To displace proof of service the defendants would need to disprove delivery. The plaintiff contends that the evidence of the defendants was not sufficient to do so, even if accepted. The plaintiff submitted that in the light of certain authorities (Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87; Lane Cove Council v Geebung Polo Club Ltd (Green as liq) (2002) 41 ACSR 15; Deputy Commissioner of Taxation v Gruber (1998) 43 NSWLR 271) that the defendants could not prove non delivery as an inference from evidence of non-receipt. The plaintiff submitted that evidence of non-delivery would be the return of the notices which were posted. There was evidence that this had not occurred (affidavit of T K Boyle). It was further submitted that, in any event, the evidence of the defendants was not sufficient to raise an inference of non-delivery to meet the defendants’ onus of proof. The response [19] The defendants submitted that there was sufficient evidence of non-delivery of the notices to amount to a triable issue. There was evidence that the defendants were residing at their postal address throughout October and November 1998. That -- 5 of 13 -- 6 residence had an effective letterbox and there was a system in place to bring delivered postal items to the attention of either defendant. There was evidence of the conduct of the defendants during the relevant period to indicate that they were not aware of the notices. They had continued to abide by the agreement with the Deputy Commissioner that the company pay substantial monthly sums towards the arrears and they did not refer the matter to the accountant contrary to their conduct in relation to the April 1999 notice, which was, within a short timeframe, referred to their accountant. These circumstances went beyond a mere assertion by the defendants that they had not received the notices or that they had not been delivered. [20] The defendants submitted that the authorities demonstrated that there was a clear distinction between non-receipt and non-delivery. There was evidence that, if the notices had been delivered they would inevitably have come to the notice of one of the defendants. Evidence of non-receipt in this case tended to show non-delivery. In Murphy v Teakbridge Pty Ltd [1999] NSWSC 1231 evidence of non-receipt was led in support of a successful case that there had been non-delivery. The defendants submitted that the evidence raises a triable issue and that the applications should be refused. [21] In support of the defendants’ arguments leave was sought to read and file a further affidavit of J Dugdale. That purported to contain a number of responses to a newspaper advertisement placed by the defendants seeking information of instances of deficiencies in the receipt of Australia Post mail. Objection was taken to the admission of that affidavit. I do not intend to have regard to the contents of that affidavit in the resolution of this application. In any event, it seems to me, it must be recognised that the postal system, like any other human endeavour, is not a perfect one. The cases [22] In Fancourt & Anor v Mercantile Credits Limited (1983) 154 CLR 87 the High Court considered an appeal from the Full Court of Queensland dismissing an appeal from a summary judgment for the plaintiff against the defendants in an action for moneys owing on default under a hire purchase agreement. One of the matters in dispute was whether the defendants had been served with notices as required under -- 6 of 13 -- 7 the Hire Purchase Act 1959. The High Court held that the notices had been properly served. The notices had been sent to an address care of the post office. The court held that the notices were addressed to the defendants at the postal address of their abode. The defendants swore that they had not received the notices. The court noted at p.95, “In the present case, the notices were not returned undelivered and there were no other circumstances which suggested that they did not reach their destination” [my emphasis] [23] The court went on to say at p.96, “There is a line of cases, commencing with R v County of London Quarter Sessions Appeals Committee; ex parte Rossi [1956] 1 QB 682, which deal with the effect of proof of non-delivery where service by post is permitted and used, having regard to s 26 of the Interpretation Act 1889 (UK). That section is the equivalent of s 39(1) of the Queensland Acts Interpretation Act. The effect of the cases appears to be that proof of non-delivery means that service cannot be deemed to have taken place under the second limb of the section at the time of delivery in the ordinary course of the post and cannot be established as having taken place at any other time. The consequence is that where it is necessary to establish service at a particular time, proof of non-delivery is as effective as proof of non-service, notwithstanding that service by post is in the circumstances permitted and requirements of the Interpretation Act are observed. … It may be thought that there is an anomaly in such a result because it means that, notwithstanding the adoption of a permitted means of service, the service is nevertheless ineffective if there is proof of non-delivery. It is, however, unnecessary to pursue these decisions here save to remark that they are all cases in which delivery was disproved. Despite remarks in the judgments about non-receipt, it was non-delivery which was significant because the second limb of s 26 of the Interpretation Act refers to proof of the contrary of delivery. As the present case shows delivery may be different from receipt by the intended recipient and, provided that delivery is not disproved, the fact of non-receipt does not displace the result that delivery is deemed to have been effected at the time at which it would have taken place in the ordinary course of the post. There is here no evidence of non- delivery.” [my emphasis] [24] In Lane Cove Council v Geebung Polo Club Pty Ltd (Green as liq) and Others (No 2) (2002) 41 ACSR 15 Barratt J (Supreme Court of NSW – Equity Division) considered an application to set aside an order winding up the Geebung Polo Club after it had failed to comply with a statutory demand served on it. The applicant claimed the statutory demand and the application for winding up had not been served. The application was refused. -- 7 of 13 -- 8 [25] In relation to service there was evidence that the statutory demand and the application for winding up were sent by ordinary prepaid post addressed to Geebung’s registered office. There was evidence from a director of Geebung that he was the only person with a key to the relevant mailbox, that he opened and cleared it regularly and that neither item was found by him in the box. There was further evidence by the director of further enquiries made by him of the postal service and information conveyed to him that all mail addressed to tenants of the postal address was to be marked “return to sender” by the postal centre. There was evidence that the items had not been returned to sender. Barratt J rejected the evidence of the director as to the enquiries with the postal service and found that, in the light of the evidence as a whole, the evidence of service had not been displaced by proof of non-delivery. [26] In reaching that conclusion, Barratt J noted at p.25, “Under s 29(1) of the Acts Interpretation Act, service is taken to occur when the posted article ‘would be delivered in the ordinary course of post’, unless the contrary is proved. The reference to and emphasis upon delivery rather than receipt are important. They mean that the proof to the contrary with which the section is concerned is proof concerning delivery rather than proof concerning receipt. … The enquiry to be made in the present case in relation to both the statutory demand and the copy application for winding up must concentrate on the evidence relevant to non-delivery as distinct from evidence of non-receipt. I therefore put to one side (the director’s) evidence of non-receipt except insofar as it throws light on the issue of delivery and turn to the evidence relevant to the question of delivery.” [my emphasis] [27] In Deputy Commissioner of Taxation v Gruber (1998) 43 NSWLR 271 the Court of Appeal considered a challenge to the validity of director penalty notices issued purportedly under s 222AOC of the Income Tax Assessment Act 1936 (Cth). The court held, in relation to an issue concerning service, that the presumptions inherent in s 29 of the Acts Interpretation Act 1901 (Cth) applied and were not displaced by the respondent’s evidence of non-receipt. Proof of non-receipt was not proof of non-delivery (p.277). -- 8 of 13 -- 9 [28] In Murphy v Teakbridge Pty Ltd [1999] NSWSC 1231, MacReady M found that in the circumstances, non-delivery of a statutory demand had been proved. The plaintiff’s evidence was that the statutory demand was served by post, addressed to the defendant at its registered office. There was evidence that the letter had not been returned to the plaintiff’s solicitors’ office. [29] MacReady M said, “[15] The question is whether in fact there is evidence of non-delivery. Clearly, in many cases there is evidence of non-receipt. Frequently this occurs in cases where a registered office has been vacated and the document is served and not returned through the post. In such cases the mere fact of non-receipt does not prove non-delivery. [16] The present circumstances in this case are somewhat different and it is necessary to see whether there might be evidence which would suggest non-delivery.” [30] The learned Master noted that the registered office was a domestic address and not a commercial one. That was important in that it obviated the possibility that at a business address other persons might have opened the mail or that there might have been a likelihood of mail being mislaid. There was evidence that the responsible person was in residence at that address during the relevant days when the letter would have been delivered in the ordinary course of the post. There was evidence from that person that the letter had not been received. The fact that that person was an accountant and practised in insolvency areas meant that he would have been aware of the importance of the statutory demand and would not have ignored it if it had been received. The fact that it was not delivered to him was supported by evidence of his reaction when he first heard that a statutory demand had been served and that an act of bankruptcy had occurred. He had reacted with extreme surprise. The Master found that there was no doubt that the letter was posted but that there was sufficient evidence “to the contrary” to disprove delivery of the letter. [31] It is clear that what must be disproved by the defendants is delivery and not receipt. I am of the view however that the cases above are not authority for the proposition that evidence of non-receipt is not relevant to the question of non-delivery. A mere claim of non-receipt would not be sufficient to disprove delivery. However, -- 9 of 13 -- 10 evidence of non-receipt, together with evidence of other relevant circumstances may permit a proper inference of non-delivery to be made. [32] It is incorrect, in my view, to argue that the only method of proving non-delivery is by proof of the item being returned by the postal authority to the sender or by proof of some extraordinary occurrence concerning interception of the article in the mail prior to delivery. With respect to proof of the item being returned to sender, the supposed recipient would need to depend on the systems of the sender in relation to returned mail. There is no evidence before me as to any system within the Australian Tax Office which would bring items of returned mail to the attention of the responsible officer. T K Boyle in his affidavit states that computer systems within the ATO are used to maintain, amongst other things, details of communications made between taxpayers and the ATO. The material does not disclose what system is in place in relation to postal items which are returned to the ATO. [33] Here there is clear evidence that the notices were posted to the proper address. There is evidence that, at least insofar as the responsible tax officers are concerned, the notices were not returned to the ATO. Pursuant to s 29 Acts Interpretation Act, service is proved to have been effected at the time at which the letter would be delivered in the ordinary course of the post, unless the contrary (that is non- delivery) is proved. The onus is on the defendants to prove non-delivery. Application for summary judgment [34] This is an application for summary judgment by the plaintiff. The issues are whether, in the circumstances, the defendants have no real prospect of successfully defending the plaintiff’s claim and whether there is no need for a trial of the claim (UCPR r.292). The only issue raised is whether there is evidence of non-delivery sufficient to raise a real prospect of successfully defending the claim. [35] Rule 292 UCPR provides, “(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. -- 10 of 13 -- 11 (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 (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.” [36] In Bernstrom v National Australia Bank Limited [2003] 1 Qd R 469, the Court of Appeal considered rules 292 and 293 UCPR. Jones J (with whom Cullinane J agreed) said: “[36] This new rule results, not only in a change of terms, but also reflects a change in the philosophy from that embodied in the former rules and in the propositions identified in Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87. Wilson J considered this new rule in Foodco Management Pty Ltd & Diaz Keinert Pty Ltd v Gomai Travel Pty Ltd [2001] QSC 291 and found guidance in the approach taken by the Court of Appeal in the United Kingdom in Swain v Hillman [2001] 1 All ER 91. The latter case considered an equivalent rule in the United Kingdom, namely R.24.4 of the Civil Procedure Rules. That rule is couched in terms which are almost identical with r.293(2) of the UCPR. The UK Court of Appeal also made reference, in the same case, to R.3.4 which provides for the court to strike out a statement of case if it appears that it discloses “no reasonable grounds for bringing or defending a claim”. That latter rule has its equivalent in the UCPR r.171. [37] In Swain Lord Woolf said concerning the relevant rules: “… The court now has a very salutary power, both to be exercised in a claimant’s favour or, where appropriate, in a defendant’s favour. It enables the court to dispose summarily of both claims or defences which have no real prospect of being successful. The words ‘no real prospect of succeeding’ do not need any amplification, they speak for themselves. The word ‘real’ distinguishes fanciful prospects of success or … may direct the court for the need to see whether there is a ‘realistic’ as opposed to a ‘fanciful’ prospect of success.” Of the rationale for those rules, his Lordship said: “It is important that a judge in appropriate cases should make use of the powers contained in Part 24. In doing so he or she gives effect to the overriding objectives contained in Part 1. It saves expense; it achieves expedition; it avoids the courts’ resources being used up on cases where this serves no purpose, and I would add, generally, that it is in the interests of justice. If a claimant has a case which is bound to fail, then it is in the claimant’s interest to know as soon as possible that that is the position. -- 11 of 13 -- 12 Likewise, if a claim is bound to succeed, a claimant should know that as soon as possible.” [38] This statement by Lord Woolf is clearly consonant with the philosophy of the UCPR as set out in r.5. It is this philosophy which underpins the change in approach reflected in the new rules. These remarks apply with equal force to both rules 292 and 293 of the UCPR. [39] It is of assistance to note that even more recently, in Alexander v Arts Council of Wales [2001] 1 WLR 1840 the Court of Appeal (UK) examined the limits of the application of CPR 24.4. That case raised the question of whether summary judgment could be entered in a defamation case where there were issues fit to be placed before a jury. CPR 24.4 specifically states that “The court may give summary judgment … in any type of proceedings.” However there remains a qualification imposed by the recognition of the respective functions of the judge and the jury, in particular, of the making by the judge of an evaluative decision on an issue which should be left to the jury. The power to enter summary judgment exists where the judge concludes that the evidence, taken at its highest, is such that a properly directed jury could not possibly reach the necessary factual conclusion. This case recognised the more liberal approach to the determination of summary judgment applications identified in Swain’s case. [40] In my view, the reasoning of the Court of Appeal (UK) in Swain should be adopted as setting the proper test for applications pursuant to rules 292 and 293 of the UCPR.” [37] In Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq) [2003] 1 Qd R 259, Holmes J (with whom Davies JA and Mullins J agreed) said at p.264: “[7] Rule 293(2) of the Uniform Civil Procedure Rules 1999 enables summary judgment to be given for the defendant if the court is satisfied that the plaintiff has ‘no real prospect of succeeding’ on its claim, and that there is no need for the trial of the claim. That level of satisfaction may not require the meeting of as high a test as that posited by Barwick CJ in General Steel (1964) 112 CLR 125: ‘That the case for the plaintiff is so clearly untenable that it cannot possibly succeed’. The more appropriate enquiry is in terms of the rule itself: that is, whether there exists a real, as opposed to a fanciful, prospect of success. However, it remains, without doubt, the case that: ‘Great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case.’” It is obvious that those comments apply equally to r.292. -- 12 of 13 -- 13 [38] In my view there is sufficient evidence of non-delivery to warrant a trial. It is not simply a matter of all the evidence only being relevant to non-receipt. Evidence relating solely to non-receipt would not be sufficient. However, evidence of non- receipt is relevant to non-delivery. [39] There is evidence from each defendant as to non-receipt. Their conduct in relation to entering into an arrangement with the ATO for the company to make monthly payments in relation to the arrears prior to the posting of the November 1998 notices and the continuance of those payments until April 1999 supports their evidence of non-receipt. Presumably they would not have continued payments to reduce the company’s deficit if they had been aware that they were personally liable as directors. The ATO was clearly a party to the agreement which was extended in February 1999. Evidence of the defendants’ conduct after receipt of the April 1999 notice, by contacting their accountant and eventually placing the company into administration, indicates their appreciation of the serious nature of the notice and also supports their evidence of non-receipt of the November 1998 notices, because they took no similar action in relation to notices with respect to a significantly larger sum. [40] When that evidence of non receipt is added to the evidence of the defendants’ presence at the relevant residential address during October and November 1998, the location and security of the letterbox at that address and the system in place for the daily clearing of mail from that letterbox, I am satisfied that there is sufficient evidence of non-delivery to raise a realistic triable issues. In the terms of r.292 I am not satisfied that the defendants have no real prospect of successfully defending the claim. [41] In those circumstances the applications are refused. I will hear the parties as to costs. -- 13 of 13 --