-
The impact of this case on ATO policy is discussed in Decision Impact Statement: Forsyth v Deputy Commissioner of Taxation (Published 30 March 2007).
FORSYTH v DFC of T
Judges:Gleeson CJ
Gummow J
Kirby J
Hayne J
Callinan J
Heydon J
Crennan J
Court:
Full High Court of Australia
MEDIA NEUTRAL CITATION:
[2007] HCA 8
Gleeson CJ, Gummow, Hayne, Callinan, Heydon and Crennan JJ
1. This is an appeal from the Court of Appeal of the Supreme Court of New South Wales
[1]
2. Subject to certain exceptions, conditions and restrictions, none of which is presently relevant, s 39(2) of the Judiciary Act provides:
" The several Courts of the States shall within the limits of their several jurisdictions, whether such limits are as to locality, subject-matter, or otherwise, be invested with federal jurisdiction, in all matters in which the High Court has original jurisdiction or in which original jurisdiction can be conferred upon it " .
3. It often has been said that s 39(2) is
"
ambulatory
"
in character and operation
[2]
Minister for Army
v
Parbury Henty
&
Co; Carrier Air Conditioning Ltd. Brickworks Ltd v Minister for Army
[4]
" The limits of jurisdiction of any court so invested found their source in State law and, I presume, any change made by the State in those limits would, under the terms of s 39(2), ipso facto make an identical change in its Federal jurisdiction. "
4.
ATC 4281
The appellant contends that the relevant limits under State law of the District Court ' s jurisdiction were such as to deny the investment of federal jurisdiction by s 39(2) in the matter. The relevant limit contended for is said in particular to flow from s 44(1)(a)(i) of the District Court Act 1973 (NSW) ( " the District Court Act " ). For the reasons contained below, that contention must be rejected.The penalty
5. It is necessary first to consider the nature of the penalty which the Deputy Commissioner sought to recover from the appellant, in particular its statutory source and the provisions of the 1936 Act governing its recovery. The task is not a simple one.
6. Part VI of the 1936 Act is headed
"
COLLECTION AND RECOVERY OF TAX
"
. Division 9 of Pt VI, headed
"
Penalties for directors of non-remitting companies
"
, was considered in
Deputy Commissioner of Taxation
v
Woodhams
[5]
7. The appellant was a director of a company, Premium Technology Pty Ltd ( " Premium " ). Between 1 August 1997 and 31 May 1999, Premium deducted PAYE instalments totalling $ 688,845.97 pursuant to Div 2 of Pt VI of the 1936 Act from the salary and wages of its employees. Premium failed to remit the whole of that amount to the Commissioner.
8. Which version of the 1936 Act must be considered? This question arises because the conduct of Premium in failing to remit the moneys straddled amendments made to the PAYE system by the
Taxation Laws Amendment Act (No 3)
1998 (Cth) (
"
the 1998 Tax Amendment Act
"
)
[6]
9. As will appear, the penalties were already due and payable by 1 July 2000. Therefore, the 1999 amendments are inapplicable and may be ignored for the purposes of these proceedings. Instead, the relevant versions of the legislation are the 1936 Act prior to the commencement of the 1998 Tax Amendment Act and the 1936 Act after those amendments. Which of the different versions speaks depends upon whether the deductions were made before or after 1 July 1998.
10. Notwithstanding the various amendments to the apparatus for the remittance of PAYE deductions and the recovery of the penalty referred to above, the basic structure of subdiv B of Div 9 of Pt VI remained unchanged at all material times. Subdivision B was enlivened, by force of s 222AOA, if a company had made
"
one or more deductions having a particular due date
"
, under, relevantly, Div 2 of Pt VI, which included the PAYE machinery. Where subdiv B applied, s 222AOB imposed a continuing obligation upon a director to cause the company to comply with its remittance obligations
[11]
11. Sections 222AOC and 222AOD imposed liability upon each director to pay a penalty for failure to comply with the obligation imposed upon the directors by s 222AOB:
" Penalty for directors in office on or before due date
222AOC. If section 222AOB is not complied with on or before the due date,
ATC 4282
each person who was a director of the company at any time during the period beginning on the first deduction day and ending on the due date is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company ' s liability under a remittance provision in respect of deductions:
- (a) that the company has made for the purposes of [ Divisions requiring remittance ] [12]
Section 222AOC(a) was amended by the 1998 Tax Amendment Act, s 3 and Sched 4, Item 65. The Divisions referred to in par (a) before that amendment were “ Division 1AA, 2, 3A, 3B or 4 & rdquo;. The Divisions referred to after that amendment were “ Division 1AAA, 3B or 4 & rdquo;. The amendments were consequential on the creation of the new Div 1AAA of Pt VI, and the consolidation into that Division of the provisions relating to remittance of different types of deductions which had previously been located in Divs 1AA, 2 and 3A. , as the case may be; and- (b) whose due date is the same as the due date.
Penalty for new directors
222AOD. If:
- (a) after the due date, a person becomes, or again becomes, a director of the company at a time when section 222AOB has not yet been complied with; and
- (b) at the end of 14 days after the person becomes a director, that section has still not been complied with;
the person is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the liability referred to in section 222AOC. "
Both of these provisions applied in the case of the appellant, who had been a director of the company from 10 October 1994 to 21 December 1998, and after ceasing to be a director for a few weeks was appointed again from 1 February 1999.
12. Section 222AOE provided that the penalty was not due and payable until 14 days after a prescribed penalty notice was given to the director:
" The Commissioner is not entitled to recover from a person a penalty payable under this Subdivision until the end of 14 days after the Commissioner gives to the person a notice that:
- (a) sets out details of the unpaid amount of the liability referred to in section 222AOC; and
- (b) states that the person is liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount, but that the penalty will be remitted if, at the end of 14 days after the notice is given:
- (i) the liability has been discharged; or
- (ii) an agreement relating to the liability is in force under section 222ALA; or
- (iii) the company is under administration within the meaning of the Corporations Law; or
- (iv) the company is being wound up. "
The Deputy Commissioner issued penalty notices to the appellant on 27 October 1998 and 15 June 1999. None of the actions referred to in s 222AOE(b) was taken. Therefore the effect of s 222AOE was that the penalties became due and payable 14 days after the penalty notices were issued. The " unpaid amount " was ultimately assessed at $ 414,326.45.
13. The penalty system may be summarised by reading the objects clause, s 222ANA, which relevantly stated:
- " (1) The purpose of this Division is to ensure that a company either meets its obligations under [ Divisions including the PAYE remittance obligations ] , or goes promptly into voluntary administration under Part 5.3A of the Corporations Law or into liquidation.
- (2) The Division imposes a duty on the directors to cause the company to do so. The duty is enforced by penalties. However, a penalty can be recovered only if the Commissioner gives written notice to the person concerned. The penalty is automatically remitted if the company meets its obligations, or goes into voluntary administration or liquidation, within 14 days after the notice is given.
- (3) A penalty recovered under this Division is applied towards meeting the company ' s obligations under the relevant Division. Conversely, amounts paid by the company reduce the amount of a penalty. "
What was referred to in sub-s (3) of s 222ANA is the feature that the liability of a director to the penalty and the liability of the company under the relevant remittance provisions were " parallel liabilities " , such that payment in
ATC 4283
discharge of either liability operated pro tanto to discharge the other (s 222AOH).The Deputy Commissioner ' s entitlement to sue
14. The statutory foundation of the Deputy Commissioner ' s entitlement to sue for the penalty was varied by the 1998 Tax Amendment Act. Nothing, however, turns on this.
15. In respect of unremitted deductions made before 1 July 1998, it must be recalled that both the obligation to deduct and the obligation to remit were located in Div 2 of Pt VI. Section 221R, also located in that Division, made provision as to what was an " amount payable " for the purposes of Div 2 of Pt VI. Section 221R(1) then provided:
" An amount payable to the Commissioner under the provisions of this Division shall be a debt due to the Commonwealth and payable to the Commissioner, and may be sued for and recovered in any court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name. "
Section 221R(1AA)(d) stated that " a penalty payable under Subdivision B of Division 9 in relation to a company ' s liability under this Division " was an " amount payable " under Div 2 of Pt VI. The penalty, in so far as it was in respect of amounts deducted prior to 1 July 1998, was, therefore, recoverable in " any court of competent jurisdiction " by the Deputy Commissioner as a debt pursuant to s 221R.
16. With the commencement of the 1998 Tax Amendment Act, the corresponding provision to s 221R became s 220AAZA. This was located in the new Div 1AAA of Pt VI of the 1936 Act, where the remittance provisions were now placed. The new Div 1AAA (ss 220AAA-220AAZG) is headed " Payment of RPS, PAYE and PPS deductions to Commissioner " . Subdivision F (s 220AAZA) is headed " Recovery of amounts by Commissioner " . Section 220AAZA(1)(e) defined the " penalty " which is a " recoverable amount " in terms almost identical to the previous s 221R(1AA)(d). Section 220AAZA(2), (3) and (4) provided a substantively identical basis for the Deputy Commissioner ' s right to sue as the previous s 221R(1). The penalty, in so far as it was in respect of amounts deducted after 1 July 1998, was therefore recoverable in " any court of competent jurisdiction " as a debt by the Deputy Commissioner pursuant to s 220AAZA(4).
The issue
17. Was the New South Wales District Court a court of competent jurisdiction within the above provisions of the 1936 Act? The Deputy Commissioner instituted an action against the appellant on 29 August 2001 by statement of liquidated claim in the District Court. No objection was then taken to the view that the District Court was " a court of competent jurisdiction " within the meaning of either s 221R(1) or s 220AAZA(4) of the 1936 Act, as the case may be. That objection was first pressed in the Court of Appeal.
18. The appellant ' s objection rests upon the proposition that State law had so altered the jurisdiction of the District Court, as, ipso facto , to effect a change in its federal jurisdiction invested by s 39(2) of the Judiciary Act and thus to put the Deputy Commissioner ' s action beyond jurisdiction. That proposition depends upon the relevant State law, to which we now turn.
19. But it may first be observed that success for the appellant would not guarantee permanent immunity from recovery of the penalty imposed by the 1936 Act. Counsel for the appellant accepted in the course of argument in this Court that a favourable outcome on the appeal would present no impediment to a fresh action by the Deputy Commissioner in a court of competent jurisdiction.
The jurisdiction of the District Court
20. The District Court is a court of record created by statute. It is a court of limited defined jurisdiction, in the sense discussed in
Pelechowski
v
Registrar, Court of Appeal (NSW)
[13]
21.
ATC 4284
On 29 August 2001, when the Deputy Commissioner commenced the present proceedings, s 44(1) was in the form substituted by the Courts Legislation Further Amendment Act 1997 (NSW) ( " the 1997 Amendment Act " ) [14]" Subject to this Act, the Court has jurisdiction to hear and dispose of the following actions:
- (a) any action of a kind:
- (i) which, if brought in the Supreme Court, would be assigned to the Common Law Division of that Court, and
- (ii) in which the amount claimed does not exceed $ 750,000, whether on a balance of account or after an admitted set-off or otherwise,
other than an action referred to in paragraph (d) or (e) " .
Paragraphs (d) and (e) made specific provision for there to be no monetary jurisdictional limit in certain kinds of actions, and are not presently relevant. It may be noted that the introduction of s 44(1)(a) in the form it took after enactment of the 1997 Amendment Act represented a departure from the previous versions of s 44(1)(a)
[15]
Vale
v
TMH Haulage Pty Ltd
[16]
22. This appeal turns on the construction of par (a) of s 44(1). The appellant submits that sub-par (i) of that paragraph must be given an ambulatory construction. The relevant question then is whether, if the particular action had been brought in the Supreme Court at the time when it was brought on 29 August 2001 , it would have been assigned to the Common Law Division of that Court. The Deputy Commissioner (supported by the Attorney-General for New South Wales, who intervened in support of the jurisdiction of the District Court) submits that the sub-paragraph must be given a " fixed-date " construction. The relevant question then is whether, if the action had been brought in the Supreme Court at the time when s 44(1)(a)(i) came into force on 2 February 1998 , it would have been assigned to the Common Law Division.
23. The Court of Appeal (Spigelman CJ, Giles JA and Gzell J) rejected the appellant
'
s construction, favouring that propounded by the Deputy Commissioner
[17]
The provisions governing the assignment of business within the Supreme Court
24. The construction of par (a)(i) of s 44(1) of the District Court Act turns on the statutory provisions governing from time to time the assignment of business within the Supreme Court of New South Wales. It is necessary to consider these in some detail. Again, the task is not a simple one.
25. Before the commencement on 1 July 1999 of Sched 10 of the
Courts Legislation Further Amendment Act
1998 (NSW) (
"
the 1998 Amendment Act
"
)
[18]
" Subject to the rules, there shall be assigned to the Common Law Division all proceedings not assigned to another Division by the foregoing provisions of this section. "
Section 53 was expressed to be " [ s ] ubject to the rules " . Further provision was made in Pt 12 of the Supreme Court Rules 1970 (NSW) ( " the Rules " ) then in force for the assignment of business. Part 12 r 4 conferred jurisdiction on the Common Law Division under certain statutes. However, as a general rule, the Common Law Division had assigned to it the
ATC 4285
residue of the general business of the Court not specifically assigned elsewhere.26. On the commencement on 1 July 1999 of Sched 10 of the 1998 Amendment Act, the Divisions of the Supreme Court were reduced to two, the Common Law Division and the Equity Division, and the business of the Court was re-assigned between them
[19]
" The rules may make provision for or with respect to the assignment of proceedings to the Court of Appeal or a Division. The assignment by the rules of any proceedings to the Court of Appeal or any Division has effect despite any contrary provision of this or any other Act or law. "
27. The appellant submits that, in so far as the Rules permit variation of the business assigned to the Common Law Division of the Supreme Court from time to time, this had had a consequential effect on the content of the jurisdiction of the District Court identified in s 44(1)(a) of the District Court Act.
The assignment of business provisions and taxation claims
28. The dispute now before this Court has arisen because actions of the kind brought by the Deputy Commissioner have not been treated consistently in the assignment of business within the Supreme Court.
29. When the provisions of the 1997 Amendment Act enacting s 44(1)(a) of the District Court Act commenced on 2 February 1998, actions of the kind brought by the Deputy Commissioner against the appellant would have been assigned to the Common Law Division of the Supreme Court. This is by reason of s 53(4) of the Supreme Court Act as it then stood, to which reference has already been made; such proceedings were not assigned specifically elsewhere
[22]
30. If, however, the appellant is correct, the contrary result would follow. This is because it is not in dispute that, before proceedings against the appellant were commenced, the Rule Committee, acting pursuant to the new s 124(3) of the Supreme Court Act, had made a critical provision in Pt 12 r 5(b)(vi) of the Rules. This assigned to the Equity Division proceedings " in relation to any provision in any Act or Commonwealth Act by which a tax, fee, duty or other impost is levied, collected or administered by or on behalf of the State or the Commonwealth " . This rule took effect from 30 June 2000, and was in force when the Deputy Commissioner commenced proceedings.
31. The substance of that rule remains in force, subject to one important qualification
[23]
32. Therefore, if the appellant is correct, on 29 August 2001, an action if brought in the Supreme Court would not have been assigned to the Common Law Division, and so would not have been within the compass of s 44(1)(a) of the District Court Act. This argument by the appellant assumes for its acceptance that the proceedings are ones " by which " a tax, fee, duty or other impost is levied, collected or administered. This point is agitated by the Deputy Commissioner in the notice of
ATC 4286
contention in reliance upon doubts expressed by Gzell J in the Court of Appeal [25]The appellant ' s submissions
33. The appellant advanced six grounds in support of his contention that an ambulatory construction should be given to s 44(1)(a) of the District Court Act.
34. The appellant ' s first argument was that s 39(2) of the Judiciary Act itself is an ambulatory provision which recognises that the jurisdiction of State courts will fluctuate from time to time. This is not, however, a decisive consideration. An anterior federal law, operating at a different level, does not provide guidance as to the scope and purpose of the State legislation which provides the factum for a particular operation of that federal law.
35. Secondly, the appellant submitted that the text of s 44(1)(a) imported a notion of futurity through use of the expression " would be assigned " in sub-par (i). However, this is not so. The provision speaks to actions " of a kind " and asks where such actions " would be assigned " . The Solicitor-General for the Commonwealth pointed out in oral submissions on behalf of the Deputy Commissioner that the provision is phrased in the subjunctive so as to identify what are hypothetical actions and that s 44(1)(a) says nothing as to time. This is a significant riposte to the appellant and further reference will be made to it.
36. Thirdly, the appellant submitted that s 68 of the Interpretation Act 1987 (NSW) ( " the Interpretation Act " ) applied to this case. Section 68(1) relevantly states:
" In any Act or instrument, a reference to some other Act or instrument extends to the other Act or instrument, as in force for the time being. "
The appellant submitted that, while there is no express reference in s 44(1)(a)(i) to another enactment, such a reference is implicit. This is so because the Supreme Court Act and the Rules determine which actions would be assigned to the Common Law Division of the Supreme Court. This submission cannot be accepted; there is no " reference to some other Act " within the meaning of s 68. Section 44(1)(a) of the District Court Act refers not to another statute, but to a state of the law as at some particular time; the issue in this case is what is that time.
37. Fourthly, the appellant submitted that, in enacting the 1997 Amendment Act, the Parliament of New South Wales must be taken to have been aware that s 53 of the Supreme Court Act as it then stood, in assigning business between the Divisions, was expressed to be
"
[
s
]
ubject to the rules
"
. This was said to show that it must have been expected that the jurisdiction of the various Divisions could change over time. If the jurisdiction of the District Court were to be fixed in time, this would have been addressed in the terms of s 44 of the District Court Act. However, no such inference should be drawn. As Spigelman CJ explained in the Court of Appeal, it is not clear that the expression
"
[
s
]
ubject to the rules
"
authorised re-assignment of matters from one Division to another, as distinct from merely authorising the Rules to impose additional prerequisites before proceedings were instituted, and other constraints of that nature
[26]
38. Fifthly, the appellant submitted that, when it enacted the 1998 Amendment Act which enlarged the rule-making power in s 124 of the Supreme Court Act, the legislature must be taken to have been aware of, and approved of, the corresponding effect that exercise of this power could have on the jurisdiction of the District Court. The appellant emphasised that an exercise of the power under s 124(3) was expressed to have " effect despite any contrary provision of this or any other Act or law " . However, that provision goes to the validity of the internal arrangements made in the Rules pursuant to s 124(3), when read against any contrary enactments. It says nothing about the construction of the earlier statute, the 1997 Amendment Act, which inserted s 44(1)(a) of the District Court Act.
39. Sixthly, the appellant submitted that there was a principle of statutory construction at common law favouring the ambulatory approach for which he contended. The correctness of this proposition in its generality was denied by the Deputy Commissioner. The Deputy Commissioner did, however, acknowledge that a rebuttable " presumption "
ATC 4287
that a statute is " always speaking " had found some degree of academic [27]Which construction is correct?
40. The extrinsic materials to which recourse may be had pursuant to s 34 of the Interpretation Act did not throw much light on the matter. Neither the Second Reading Speech
[30]
41. Regard must be had to the nature of the court upon which jurisdiction is conferred. There is no particular reason to assume that Parliament would have intended that the conferral of jurisdiction upon a court of limited and defined jurisdiction should be construed in an ambulatory or " always-speaking " manner.
42. If attention be directed to the mischief which the legislation was designed to remedy, the only indication of what this was thought to be is the reference in the Explanatory Note accompanying the 1997 Amendment Act to removing doubts as to the District Court ' s jurisdiction. An ambulatory construction would not serve that objective. If anything, it would introduce a new source of doubt, necessitating continual inquiries as to the assignment of business within the Supreme Court.
43. On the other hand, it is consistent with the removal of doubts that the jurisdiction of the District Court be fixed by reference to those actions which at the time of the enactment were not assigned to a specialist Division within the Supreme Court. The phrasing of sub-par (i) of s 44(1)(a) in the subjunctive is apt to accommodate future actions by asking whether, at the time of the commencement of s 44, they would have been assigned to the Common Law Division if commenced in the Supreme Court. On the other hand, the reference in sub-par (ii) to the limit of $ 750,000 was fixed. This secured the evident objective of equipping the District Court to handle many common law actions which before the enactment of s 44 would have been instituted and remained in the Supreme Court. The circumstance that the structure of the Supreme Court subsequently was altered does not detract from the cogency of these considerations.
44. Further, on any view, sub-par (ii) of s 44(1)(a), with the specification of the monetary limit to the District Court ' s jurisdiction, did not admit of an ambulatory construction. Consistency does not favour giving sub-par (i) of s 44(1)(a) such a construction, thereby differentiating between the two conditions which the hypothetical action spoken of in s 44(1)(a) must satisfy.
45. For all these reasons, the appellant ' s construction must be rejected. Sub-paragraph (i) of s 44(1)(a) of the District Court Act must be construed as referring to actions which would have been assigned to the Common Law Division of the Supreme Court as at the time when the 1997 Amendment Act was enacted. Accordingly, the District Court was invested with federal jurisdiction to determine the Deputy Commissioner ' s action, and the appeal must fail.
The notice of contention
46. Given the above conclusion, it is unnecessary to express any views upon the Deputy Commissioner ' s notice of contention to the effect that an action for the recovery of a penalty for which a director is liable pursuant to subdiv B of Div 9 of Pt VI of the 1936 Act is not a proceeding by which a " tax, fee, duty or other impost " is levied, collected or administered, and so, in any event, would not have been assigned to the Equity Division of the Supreme Court.
Order
47. The appeal should be dismissed with costs.
Footnotes
[1][2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11]
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]
[20]
[21]
[22]
[23]
[24]
[25]
[26]
[27]
[28]
[29]
[30]
[31]
This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.