DISTRICT COURT OF QUEENSLAND

Deputy Commissioner of Taxation v Simpson

[2003] QDC 342

White DCJ

10 October 2003 - Cairns

White DCJ. The plaint whereby this claim was commenced was filed on 4 May 1999. The action was brought against the defendant as a director of a corporation I H Management Pty Ltd in respect of group tax deducted from the wages of employees of the corporation which the company was required to remit to the plaintiff by the 21st day of the month following the month in which the deductions were made. The relevant deductions were as follows:

August 1998	$21136.88
September 1998	$16682.48
October 1998	$14202.10
November 1998	$22151.93
December 1998	$14304.70
January 1999	$25476.34

2 On 10 March 1999 the corporation entered into an agreement to pay the outstanding group tax. It was a provision of the agreement that if the corporation failed to meet any of the instalments as and when they fell due the whole of the outstanding amount would become payable. The plaintiff sued the defendant who was a director of the corporation at the time the agreement was entered into in respect of the debt due by the company relying on certain provisions of the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936). It is not disputed that prima facie, by reason of subs 222AQA(2) the defendant was liable to the plaintiff in respect of the corporation's debt.

3 The plaintiff filed an application for summary judgment on 5 July 2001. That application then came on for hearing before me on 27 April 2001. On 26 April 2001 the defendant filed an Amended Defence pleading for the first time certain defences pursuant to s 222AQD. At the hearing the defendant filed by leave (without objection) an affidavit setting out facts which he proposed to rely upon to substantiate the defence. For convenience I refer to my ex tempore reasons given on 27 April 2001:

However the Act by reason of s 222AQD provides defences to a director of a company from whom it is sought to recover the debt due to the Deputy Commissioner of Taxation by a company of which he was a director pursuant to such an agreement. There is no dispute that these defences are capable of applying to the claim made against the defendant. Subsection 222AQD(5) provides:

If the person was a director of the company at the time when the agreement was made he or she is not entitled to rely on a defence under subsection (2) or (3) unless it is also proved that at that time the person had reasonable grounds to expect and did expect that the company would comply with the agreement.

Subsection (3) provides as follows:

It is also a defence if it is proved that -
(a) The person took all reasonable steps to ensure that the company complied with the agreement, or

(b) There were no such steps that the person could have taken.

For reasons which I went on to explain I concluded that the defendant raised a trialable issue and dismissed the application.

4 No steps were taken in the action until 8 July 2002 when the plaintiff filed an Amended Statement of Claim which raised a new cause of action. This was based upon s 222AOC of the ITAA 1936. It is an undisputed fact that the defendant was a director of the corporation from 16 March 1998 to 20 May 1999. Section 222AOC makes any person, who was a director of a corporation which was liable to pay tax instalments at the time they were due and failed to make such payments prima facie, personally liable by way of penalty for the outstanding amounts. This application for summary judgment was filed on 9 May 2003. The prima facie liability of the defendant in respect of the claim is not disputed on this application. However the defendant raises a defence under s 222AOJ which so far as is relevant provides as follows:

(3) It is also a defence if it is proved that -
(a) the person took all reasonable steps to ensure that the directors complied with s 222AOB(1) … or

(b) that there were no such steps that the person could have taken.

"reasonable" means reasonable having regard to -
(a) when and for how long the person was a director and took part in the management of the company and

(b) all other relevant circumstances.

5 The basis for this defence is contained in the defendant's affidavit filed on 16 July 2003. The affidavit is short and I will set out the relevant passages verbatim:

3. I am the director of an architectural practice in Cairns. I do not have any formal education in accounting and financial matters. My then co-director in the company Mr Drew Kellahan possesses legal qualifications and has practiced as a solicitor.

4. From the outset of my association with the company it was agreed between Drew Kellahan and I that there would be a clear division of responsibilities within the company. I was to establish and oversee the architectural aspects of the resort on Double Island and see to the completion of the construction of the resort. Mr Kellahan was to oversee and have ultimate responsibility for all financial matters associated with the company. There was a general manager at the resort (Michael Ruff and later Greg Ryan) to whom the resort's accountants (Eric Paige-Hanify and John Mills) reported. It was the accountants' function inter alia to see to the payment of employees wages and to ensure that the deduction of income tax and the payment of that tax to the Income Tax Department.

5. I was generally aware of the obligation to make those tax deductions and to remit the tax instalments to the Income Tax Department. I relied upon the system in place in the company which I have described to ensure compliance with the company's obligations to the Income Tax Office.

6. I was not personally aware that the requisite deductions has not been paid in the period between September 1998 to February 1999. I was not informed of this fact by Mr Kellahan or the general Manager of the resort or by the resort accountants. Had I been informed of the facts of the matter I would have raised the matter with Mr Kellahan and taken appropriate advice about the company's position and my own position.

6 This is the second application for summary judgment made by the plaintiff in this claim. It is accepted that the plaintiff requires leave to proceed with this application. There are factors which mitigate against granting such leave. However the substantive application has been dealt with by the parties in affidavit material and has been argued before me. It seems to me therefore to be a material factor in deciding whether or not leave should be granted to consider whether or not there is a proper basis for the application. For convenience I will deal with that aspect of the application first.

7 It is of relevance to note that the plaintiff relies on an affidavit of Yvonne Marie Wilson filed on 9 May 2003 in support of this application. That affidavit contains copies of a number of documents obtained from the Australian Government Solicitor said to have been originally supplied by the liquidator of the company. The defendant has had plenty of time to consider these documents and address them in his affidavit. He has not done so. I therefore conclude that these documents are in fact what they appear to be on their face. In particular, I accept that documents which appear on their face to be signed by the defendant were so signed.

8 The following are matters which I consider to be relevant:

1. The company was incorporated on 13 March 1998.

2. The defendant and Drew Adrian Kellahan were appointed directors on 16 March 1998.

3. I H Management Pty Ltd had an associated company, Island Holdings Pty Ltd.

4. The defendant signed (as chairman) a licence agreement dated 13 March 1998 with Hotel Box Office Pty Ltd engaging that latter corporation to provide television and video facilities to rooms at the Double Island Retreat business. The licence agreement committed Island Holdings Pty Ltd to a monthly payment of $287.44.

5. On 24 April 1998 the defendant signed (as chairman) a Notice of Appointment in respect of Egas Consulting Pty Ltd appointing that corporation as consultant in relation to Export Market Development Grant claims. The appointment provided for consulting fees to be paid to Egas at a minimum of $1000 per claim year.

6. On 29 April 1998 the defendant signed a rental agreement with Club Car Credit Pty Ltd committing I H Management Pty Ltd to 48 monthly payments of $344.00 each.

7. On 1 June 1998 the defendant signed an authority on the bank account of I H Management Pty Ltd with the National Australian Bank authorising periodic monthly transfers of $344.00 to Club Car Credit Pty Ltd.

8. On 28 May 1998 the defendant signed a lease agreement with Esanda Finance Corporation on behalf of I H Management Pty Ltd for the lease of a computer system at 48 monthly instalments of $943.89.

9. On 13 July 1998 the defendant signed a chattel mortgage for the purposes of obtaining finance from Esanda Finance Corporation to I H Management Pty Ltd for the purchase of a long list of water sports and stereo equipment. Repayments involved 36 monthly instalments of $1595.65.

10. On 26 August 1998 the defendant signed a periodic payment authority for the National Australia Bank to pay $394.00 per month until 13 July 2002 to Club Car Credit Pty Ltd.

11. On 4 September 1998 the defendant signed a periodical debit request to the National Australia Bank in respect of the I H Management Pty Ltd account in favour of Hunter Premium Funding Limited.

12. On 14 September 1998 the defendant signed a request to the National Australia Bank to make deposits to the bank accounts of the following in order to cover previously dishonoured cheques:

Garozzo's Agencies Pty Ltd	$4,526.70
Gordon Wilson & Associates Pty Ltd	$2,903.11

13. On 5 October 1998 the defendant signed an application for a domain name and website to Internet North on behalf of I H Management Pty Ltd.

14. On 10 September 1998 the defendant signed a loan agreement with Hunter Premium Funding Limited committing Island Holdings Pty Ltd to repay a total of $33,786.00 by monthly instalments of $3754.00.

15. On 14 October 1998 the defendant signed a request to the National Australia Bank to transfer $17,920.00 from I H Management Pty Ltd to Island Holdings Pty Ltd.

16. On 19 October 1998 the defendant signed an application for a credit account on behalf of I H Management Pty Ltd with Sunshine Television.

17. On 19 October 1998 the defendant signed 2 cheques drawn on the I H Management Pty Ltd account totalling $5427.12.

18. On 23 October 1998 the defendant signed an application for a credit account with Win Television.

19. On 28 January 1999 the defendant signed an internal memorandum to Greg Ryan concerning dealings with the Department of Transport.

20. The defendant signed further requests to the National Australia Bank to transfer funds from the account of I H Management Pty Ltd as follows:

14/9/1998	$7,429.81
22/10/1998	$4,786.95
22/12/1998	$2,000.00
3/11/1998	$7,000.00

9 On the basis of the above I draw the conclusion that throughout the material period of time the defendant:

(a) was a signatory on the bank account of I H Management Pty Ltd.

(b) was involved in authorising ongoing financial commitments of I H Management Pty Ltd.

Under the circumstances in my view the defendant was reasonably obligated to ensure that I H Management Pty Ltd was able to meet its financial obligations. These financial obligations not only included the obligations which the defendant was expressly authorising but other financial obligations including its obligation to remit monthly group tax deductions from employees' wages to the Income Tax Office. There is no evidence to suggest that he ever made inquiries in this regard and as a signatory on the company's bank account it is unimaginable that had he made appropriate inquiries he would not have become aware of the company's failure in regard to the remittance of group tax deductions.

10 So far as is relevant r 292 of the Uniform Civil Procedure Rules 1999 (Qld) provides as follows:

(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.

(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.

11 The introduction of this rule requires a somewhat more robust approach than was previously the case in respect of applications for summary judgment. See Bernstrom v National Australia Bank Limited (2003) 1 Qd R 469. I am satisfied that the defendant has no real prospect of successfully defending the plaintiff's claim. I am also satisfied that there is no need for a trial of the claim. Although, as I have said, there are factors which might otherwise mitigate against granting the plaintiff leave to make this further application, in light of my view as to the prospects of the defendant successfully defending the plaintiff's claim there is no point in refusing the plaintiff leave and in my view the plaintiff should be granted leave. Matters such as delay and the making of a second application can be adequately taken into account to the defendant's benefit in relation to any interest allowed on the outstanding judgment sum and appropriate costs orders. The Amended Statement of Claim in which the cause of action upon which the plaintiff now succeeds was filed on 8 July 2002. In my view interest on the claim should be limited to a period commencing on that date. My further information is to order that the plaintiff pay the defendant's costs of the first application for summary judgment which failed and which cause of action has now become redundant. However, in dismissing that original application I ordered that each party's costs of that application be each party's costs in the action. I have difficulty seeing how I can vacate that order and make some different order. In my view the defendant can be adequately compensated for having to deal with 2 applications for summary judgment if I exclude from the costs order which I propose to make in favour of the plaintiff, costs in relation to this current application and further order that the plaintiff pay the defendant's costs of this current application then the defendant will be adequately compensated for the difficulty of the 2 applications. I also propose to give each party liberty to apply in case the figures have changed since the date of hearing.

12 The orders will be as follows:

1. That the plaintiff have judgment against the defendant for the sum of $34,281.24 together with interest thereon calculated at the rate of 9% per annum from 8 July 2002 until the date upon which judgment is entered.

2 That the defendant pay the plaintiff's costs of and incidental to the action (excluding the plaintiff's costs of the application filed 9 May 2003) to be assessed on the standard basis.

3. That the plaintiff pay the defendant's costs of and incidental to the application filed 9 May 2003 to be assessed on the standard basis.

4. That each party shall have liberty to apply on at least 2 days notice in writing to the other.