FC of T v WINTERS & ANOR

Judges:
Moynihan J

Court:
Supreme Court of Queensland

Judgment date: Judgment delivered 7 October 1997

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Moynihan J

These are applications for summary judgment brought in actions commenced by specially endorsed writs claiming a liquidated sum by way of penalty which is recoverable pursuant to the provisions of the Divisions 2 and 9 of Part VI of the Income Tax Assessment Act 1936 (Commonwealth) (``the Act''). The outcome of the applications turn on essentially the same issues and they can therefore be disposed of together.

Each of the defendants was a director of Savage Graphics Pty Ltd (``the company'') and the company was at all material times a group employer required by the Act to make deductions from the salary or wages paid to its employees and to remit the amount of the deductions to the plaintiff within a specified time. It is established that the company failed in this obligation so exposing the defendants to the penalties sought to be recovered in these actions.

On 29 March 1996 the plaintiff gave each of the defendants a penalty notice under s. 222AOE of the Act in respect of outstanding moneys which the company had failed to remit. The plaintiff was not entitled to receive any penalty until fourteen days after the notice was given. The penalty was remitted if at the end of fourteen days after the notice was given the defendants had caused the company to do one of the following-

• (a) remitted the amounts deducted to the plaintiff;
• (b) entered into an agreement with the plaintiff under s. 222ALA of the Act in

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  relation to the company's obligations to remit deductions;
• (c) appointed an administrator of the company under the Corporations Law;
• (d) caused the company to be wound up.

The defendants set up in effect that the plaintiff is precluded from relying on the expiration of the fourteen days without the defendants having taken one of the steps required to effect remission of the penalty.

The defendants received the notice on 2 April and it seems to have been accepted that the fourteen days runs from there. When the penalty notice was received by the defendants they were endeavouring to sell the company which was obviously in financial difficulties. There had previously been arrangements with the plaintiff to discharge the company's obligations in respect of making and remitting deductions from salary and wages other than in respect of the instalments the subject of these actions. On 20 May 1996 the plaintiff had initiated steps to wind up the company. The directors had considered voluntary administration for the company and had discussed it with the company's accountant as early as November 1995. In this context, prior to the receipt of the penalty notices on 2 April, there had been discussions between the defendant David John Winters (``Winters'') (for material purposes he was the agent of the defendant Karen Margaret Winters) and the plaintiff's officer Maxwell Frank Noble (``Noble'').

Winters deposes that as a consequence of receiving the penalty notice he telephoned Noble on 4 April 1996 to arrange a meeting. A meeting was arranged and then postponed from Wednesday 10 April to Friday 12 April according to Winters at Noble's request. Winters attended the meeting accompanied by an accountant. He deposes that Noble was told of endeavours to sell the company and that three options were discussed at the meeting. The first was for the company to enter into an arrangement with the plaintiff and to keep trading apparently with a view to its being sold. The second was for the company to cease trading immediately in which case the plaintiff would receive nothing and thirdly that the company could go into voluntary liquidation. Winters deposes that Noble said that the plaintiff wanted 100% of the amount due and to the effect that it would be in everybody's interest for the company to keep trading.

Noble's account of this meeting is that he did not discuss the penalty notices of 29 March at the meeting. He agreed to postpone recovery action to allow the company's accountant to look at options for an arrangement with the plaintiff. He indicated that to be accepted any proposal would have to include an ``upfront payment'' of at least $100,000. Inferentially, postponement of recovery action seems capable of including action founded on the penalty notices given to the defendants.

Noble puts in issue various allegations made in the defence including that at the meeting of 12 April he had led Winters to believe a satisfactory arrangement could be entered into with the company and that Winters had a ``legitimate expectation'' that the time for compliance with the penalty notice of 29 March would be extended. Time under the penalty notice of 29 March was accepted before me as having expired on 16 April. The company had then not submitted a proposal as contemplated by the meeting of 12 April and the defendants had not taken any step to effect remission of the penalty as provided for by s. 222AOE.

Winters deposes that he advised Noble ``of progress'' on 29 April and that there were a number of telephone conversations with Noble during May including one in which an offer designed to resolve the matter was put and rejected.

Noble deposes that on 30 May 1996, authorised by Winters, he had a discussion with an officer of the Commonwealth Bank concerning the company's outstanding group tax; the bank had a charge over the company's and the Winters' personal assets. Noble deposes that he rejected an offer for the payment of outstanding tax, he told the bank officer that the plaintiff ``would require a much greater upfront payment and security for any repayment plan with respect to the balance owing''. Winters deposes that this is the first time that security was mentioned and that it was impossible to satisfy such a requirement because of the bank's charge. Again on Noble's account on the same day Winters telephoned him offering an increased upfront payment which was rejected. Winters told Noble that no security was available in respect of any outstanding balance, Noble indicated ``that in those circumstances

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winding up proceedings commenced against the company would proceed''.

The company directors then met on 11 June 1996 and resolved to appoint an administrator effective from 17 June, it seems the date was selected because the proposed administrator indicated it was the most convenient.

On 12 August there was a meeting of creditors of the company attended by Noble at which it was resolved that the company enter into a deed of arrangement and the plaintiff decided not to pursue the winding up proceedings. The writs the subject of these summary judgment applications were issued on 27 September 1996 and the applications for summary judgment were made on 23 May 1997. The delay between the issue of the writs and the bringing of the applications is explained by internal procedures in the office of the plaintiff's solicitor involved in obtaining and considering an opinion as to the prospects of success in the light of the defence delivered.

Winters deposes to the effect that had Noble not told him that it would be in the best interests of the company to keep trading or had given an indication at the meeting of 12 April that further negotiation was fruitless, steps would have been taken to appoint an administrator without delay. In the event he deposes that the appointment was postponed ``in the hope that a payment schedule could be agreed''.

Estoppel of the kind the defendants seek to rely on here precludes a party who has induced another party to rely on a promise and thereby act to that second party's detriment from resiling from its promise unless the detriment is avoided; Walton Stores (Interstate) Ltd v. Maher^[1] (1988) 164 CLR 387 and The Commonwealth of Australia v. Verwayen.^[2] 90 Aust Torts Reports ¶81-036; (1990) 170 CLR 394 At Aust Torts Reports p 67,962; CLR p. 413 of Verwayen Mason CJ says-

``... The result is that it should be accepted that there is but one doctrine in estoppel, which provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied on an assumption as to a present, past or future state of affairs (including a legal state of affairs), which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness. A central element of that doctrine is that there must be a proportionality between the remedy and the detriment which is its purpose to avoid.''

Here the defendants set up a case that they were induced not to appoint an administrator during the fourteen day period by the plaintiff's conduct so that the plaintiff cannot now take advantage of that failure.

In my view, depending of course on the resolution of factual issues in their favour, the defendants are capable of making out the elements founding an estoppel of the kind for which they contend. The potential for the defendants to do so avoids the difficulties facing those who endeavoured to set up estoppel in Tropitone Furniture Company Pty Ltd v. Deputy Commissioner of Taxation;^[3] 22 ATR 361 AGC (Investments) Ltd v. Federal Commissioner of Taxation^[4] 91 ATC 4180; 21 ATR 1379 and Minister for Immigration and Ethnic Affairs v. Polat.^[5] 37 ALD 394 The evidence in those cases did not establish, or was not capable of establishing the necessary factual elements to found estoppel.

It may be accepted as a matter of general principle that estoppel will not prevent the exercise of a statutory obligation; see Polat^[6] 37 ALD 394 at 339 in the joint judgment of Davies and Branson JJ where an extensive examination of the authorities is undertaken. It is however by no means clear that the principle extends to the circumstances here so as to prevent the defendants from raising the limited estoppel on which they rely. Assuming all else in the defendants favour they simply seek to preclude the plaintiff from relying on the consequences of their failure to take steps to avoid the effect of the penalty notices within fourteen days of their receipt; that is in the light of an administrator being effectively appointed on 17 June. In the circumstances, the considerations being those that I have outlined, the applications for summary judgment should be dismissed and the defendants should have leave to defend.