Deputy Commissioner of Taxation v George Dow Taylor Dick
Document type: Decision Impact Statement
Venue: Supreme Court (CA 40614/06; CA 40656/06; DC 128/04)
Judgment date: 3 August 2007
Date published: 4 March 2008
Decision outcome: Favourable

Summary of decision:
This case concerned whether section 1318 of the Corporations Act 2001 (Cth) can operate to relieve a director from liability for a penalty arising under Part VI Division 9 of the Income Tax Assessment Act 1936 (Cth).

Overview of facts:
George Dick was a director of the Northern Spirit Football Club 2000 Pty Ltd ("the company") between 19 January 2001 and 14 March 2003. | During the period 1 June 2002 to 31 March 2003, the company failed to remit monthly PAYG withholding tax to the Commissioner by the relevant due dates. | As a director of the company, Mr Dick had a duty pursuant to subsection 222AOB(1) of the Income Tax Assessment Act 1936 (Cth) ("ITAA 1936") to ensure that the company either remitted the tax or took other proper steps to remedy the situation as outlined in that subsection. | Mr Dick failed to act under subsection 222AOB(1) of the ITAA 1936. Due to Mr Dick's failure to act, the Commissioner took steps to recover from Mr Dick, in accordance with section 222AOE of the ITAA 1936, a penalty in the amount of $141,295.19 (this amount being equal to the tax withheld by the company during Mr Dick's tenure as a director). Mr Dick failed to comply with the penalty notices of the Commissioner within the required timeframe. | The Commissioner thereby became entitled to recover a penalty in the amount of $141,295.19 and sought to do so in the District Court of NSW. Mr Dick denied liability and sought to make out the defence in subsection 222AOJ(2) of the ITAA 1936 (i.e. that for a good reason he had not participated in the management of the company over the relevant period). The trial judge held that this defence was not made out. | Mr Dick also argued that he ought to be excused from any default under the ITAA 1936 by section 1318 of the Corporations Act 2001 (Cth) ("Corporations Act"). | The trial Judge found that the Court had a discretion to relieve Mr Dick under section 1318 and also that it was appropriate to exercise the discretion in Mr Dick's favour. Accordingly a verdict was entered for Mr Dick on 6 September 2006. | The Commissioner appealed to the NSW Court of Appeal, where Spigelman CJ, Santow and Basten JJA all allowed the Commissioner's appeal, holding that section 1318 of the Corporations Act cannot operate to relieve a director from director penalty liabilities imposed under Part VI Division 9 of the ITAA 1936, although with some difference of reasoning. | Mr Dick then sought special leave to appeal to the High Court of Australia. Special leave was denied by the High Court on 8 February 2008. | Issues decided by the court or tribunal | 1. Inconsistency Spigelman CJ, Santow and Basten JJA ultimately agreed that section 1318 is inconsistent with Division 9 of Part VI of the ITAA 1936, and cannot operate to relieve a director from liability thereunder: • per Santow JA at paragraph 132: "I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s.1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s.1318 to apply." • per Basten JA at paragraph 143: "In a practical sense, the provisions cannot operate together. the inconsistency must be resolved by denying s. 1318 operation in relation to the liability of a director under ss. 222AOB and 222AOC of the Assessment Act." • Spigelman CJ decided the case on another point, which made it unnecessary for him to discuss the inconsistency point in detail, but commented at paragraph 55: "... I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s.1318 then I would agree, for the reasons his Honour gives, that s.1318 has no application to a director's liability under s.222AOC of the ITAA." | Spigelman CJ, Santow and Basten JJA ultimately agreed that section 1318 is inconsistent with Division 9 of Part VI of the ITAA 1936, and cannot operate to relieve a director from liability thereunder: • per Santow JA at paragraph 132: "I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s.1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s.1318 to apply." • per Basten JA at paragraph 143: "In a practical sense, the provisions cannot operate together. the inconsistency must be resolved by denying s. 1318 operation in relation to the liability of a director under ss. 222AOB and 222AOC of the Assessment Act." • Spigelman CJ decided the case on another point, which made it unnecessary for him to discuss the inconsistency point in detail, but commented at paragraph 55: "... I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s.1318 then I would agree, for the reasons his Honour gives, that s.1318 has no application to a director's liability under s.222AOC of the ITAA." | • per Santow JA at paragraph 132: "I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s.1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s.1318 to apply." • per Basten JA at paragraph 143: "In a practical sense, the provisions cannot operate together. the inconsistency must be resolved by denying s. 1318 operation in relation to the liability of a director under ss. 222AOB and 222AOC of the Assessment Act." • Spigelman CJ decided the case on another point, which made it unnecessary for him to discuss the inconsistency point in detail, but commented at paragraph 55: "... I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s.1318 then I would agree, for the reasons his Honour gives, that s.1318 has no application to a director's liability under s.222AOC of the ITAA." | There were some differences in reasoning in relation to other issues: | 2. Does section 1318 apply outside of the Corporations Act? • Spigelman CJ held that section 1318 does not apply to any statutory obligations imposed by legislation other than the Corporations Act. He found that, having regard to the language of the section and its legislative history, section 1318 was only intended to apply to civil proceedings with respect to duties imposed by or contraventions of the Corporations Act (particularly as many of the statutory duties reflect the general law); [paragraphs 15 and 20.] • Santow JA found that section 1318 could extend to statutory duties outside the Corporations Act where those duties had the requisite corporate character. He further found that director penalties do have the requisite corporate character, as they were introduced as part of a regime that abolished the Commissioner's priority in liquidation. [paragraph 111.] • Basten JA did not consider this issue. | • Spigelman CJ held that section 1318 does not apply to any statutory obligations imposed by legislation other than the Corporations Act. He found that, having regard to the language of the section and its legislative history, section 1318 was only intended to apply to civil proceedings with respect to duties imposed by or contraventions of the Corporations Act (particularly as many of the statutory duties reflect the general law); [paragraphs 15 and 20.] • Santow JA found that section 1318 could extend to statutory duties outside the Corporations Act where those duties had the requisite corporate character. He further found that director penalties do have the requisite corporate character, as they were introduced as part of a regime that abolished the Commissioner's priority in liquidation. [paragraph 111.] • Basten JA did not consider this issue. | 3. Are proceedings under Part VI, Division 9 of the ITAA 1936 proceedings for "negligence, default, breach of trust or breach of duty" within the meaning of that phrase in section 1318? • Spigelman CJ stated that words such as "negligence" and "breach of trust" would not extend in their natural and ordinary meanings to statutory obligations. [paragraphs 11 and 15.] • Santow JA stated that the word "for" should be read as "in respect of" and accordingly found that director penalty proceedings are proceedings with respect to a breach of duty. [paragraphs 93 and 94.] • Basten JA did not consider this issue. | • Spigelman CJ stated that words such as "negligence" and "breach of trust" would not extend in their natural and ordinary meanings to statutory obligations. [paragraphs 11 and 15.] • Santow JA stated that the word "for" should be read as "in respect of" and accordingly found that director penalty proceedings are proceedings with respect to a breach of duty. [paragraphs 93 and 94.] • Basten JA did not consider this issue.

Issues decided:
1. Inconsistency Spigelman CJ, Santow and Basten JJA ultimately agreed that section 1318 is inconsistent with Division 9 of Part VI of the ITAA 1936, and cannot operate to relieve a director from liability thereunder: • per Santow JA at paragraph 132: "I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s.1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s.1318 to apply." • per Basten JA at paragraph 143: "In a practical sense, the provisions cannot operate together. the inconsistency must be resolved by denying s. 1318 operation in relation to the liability of a director under ss. 222AOB and 222AOC of the Assessment Act." • Spigelman CJ decided the case on another point, which made it unnecessary for him to discuss the inconsistency point in detail, but commented at paragraph 55: "... I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s.1318 then I would agree, for the reasons his Honour gives, that s.1318 has no application to a director's liability under s.222AOC of the ITAA." Spigelman CJ, Santow and Basten JJA ultimately agreed that section 1318 is inconsistent with Division 9 of Part VI of the ITAA 1936, and cannot operate to relieve a director from liability thereunder: • per Santow JA at paragraph 132: "I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s.1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s.1318 to apply." • per Basten JA at paragraph 143: "In a practical sense, the provisions cannot operate together. the inconsistency must be resolved by denying s. 1318 operation in relation to the liability of a director under ss. 222AOB and 222AOC of the Assessment Act." • Spigelman CJ decided the case on another point, which made it unnecessary for him to discuss the inconsistency point in detail, but commented at paragraph 55: "... I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s.1318 then I would agree, for the reasons his Honour gives, that s.1318 has no application to a director's liability under s.222AOC of the ITAA." • per Santow JA at paragraph 132: "I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s.1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s.1318 to apply." • per Basten JA at paragraph 143: "In a practical sense, the provisions cannot operate together. the inconsistency must be resolved by denying s. 1318 operation in relation to the liability of a director under ss. 222AOB and 222AOC of the Assessment Act." • Spigelman CJ decided the case on another point, which made it unnecessary for him to discuss the inconsistency point in detail, but commented at paragraph 55: "... I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s.1318 then I would agree, for the reasons his Honour gives, that s.1318 has no application to a director's liability under s.222AOC of the ITAA." There were some differences in reasoning in relation to other issues: 2. Does section 1318 apply outside of the Corporations Act? • Spigelman CJ held that section 1318 does not apply to any statutory obligations imposed by legislation other than the Corporations Act. He found that, having regard to the language of the section and its legislative history, section 1318 was only intended to apply to civil proceedings with respect to duties imposed by or contraventions of the Corporations Act (particularly as many of the statutory duties reflect the general law); [paragraphs 15 and 20.] • Santow JA found that section 1318 could extend to statutory duties outside the Corporations Act where those duties had the requisite corporate character. He further found that director penalties do have the requisite corporate character, as they were introduced as part of a regime that abolished the Commissioner's priority in liquidation. [paragraph 111.] • Basten JA did not consider this issue. • Spigelman CJ held that section 1318 does not apply to any statutory obligations imposed by legislation other than the Corporations Act. He found that, having regard to the language of the section and its legislative history, section 1318 was only intended to apply to civil proceedings with respect to duties imposed by or contraventions of the Corporations Act (particularly as many of the statutory duties reflect the general law); [paragraphs 15 and 20.] • Santow JA found that section 1318 could extend to statutory duties outside the Corporations Act where those duties had the requisite corporate character. He further found that director penalties do have the requisite corporate character, as they were introduced as part of a regime that abolished the Commissioner's priority in liquidation. [paragraph 111.] • Basten JA did not consider this issue. 3. Are proceedings under Part VI, Division 9 of the ITAA 1936 proceedings for "negligence, default, breach of trust or breach of duty" within the meaning of that phrase in section 1318? • Spigelman CJ stated that words such as "negligence" and "breach of trust" would not extend in their natural and ordinary meanings to statutory obligations. [paragraphs 11 and 15.] • Santow JA stated that the word "for" should be read as "in respect of" and accordingly found that director penalty proceedings are proceedings with respect to a breach of duty. [paragraphs 93 and 94.] • Basten JA did not consider this issue. • Spigelman CJ stated that words such as "negligence" and "breach of trust" would not extend in their natural and ordinary meanings to statutory obligations. [paragraphs 11 and 15.] • Santow JA stated that the word "for" should be read as "in respect of" and accordingly found that director penalty proceedings are proceedings with respect to a breach of duty. [paragraphs 93 and 94.] • Basten JA did not consider this issue.

ATO view of decision:

Administrative treatment:
Implications on current Public Rulings & Determinations | None

Legislative references: Bankruptcy Act 1966 (Cth) Betting & Gaming Duties Act 1972 (UK) Companies Act 1907 (UK) 32 Companies Act 1929 (UK) 152 372 Companies Act 1948 (UK) 448 Companies Act 2006 (UK) Companies Act 1958 (Vic) Companies Act 1961 (NSW) 292(1)(a) Corporations Law 588G 588H 588M 588R 588T 588W 588X 588FGA 1317JA Corporate Law Reform Act 1992 (Cth) Companies Code 1981 (Cth) 535 556 Corporations Act 2001 (Cth) 556(1)(a) 1317JA 1317S 1318 Judiciary Act 1903 (Cth) 64 Income Tax Assessment Act 1936 (Cth) Pt 6 Div 8 Pt 6 Div 9 221P 221YHJ 222ANA 222AOB 222AOC 222AOE 222AOG 222AOJ Insolvency (Tax Priorities) Legislation Amendment Act 1993 (Cth) Taxation Administration Act 1953 (Cth) 255-5(1) Uniform Companies Act 1961 161 365
Case references: Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Traders Union Australia (1932) 47 CLR 1 Australian Capital Television Pty Ltd v The Commonwealth (1992) 177 CLR 106 Australian Securities & Investment Commission v Vines (2005) 65 NSWLR 281 (2006) 56 NSWCCA 231 City Equitable Fire Insurance Co Ltd, In re [1925] Ch 407 Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 Customs & Excise Commissioners v Hedon Alpha Limited [1981] QB 818 Daniels v Anderson (1995) 37 NSWLR 438 Dao v Australian Postal Commission (1987) 162 CLR 317 David Grant & Co Pty Ltd (Receiver appointed) v Westpac Banking Corporation (1995) 184 CLR 265 Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113 52 ATR 526 Deputy Commissioner of Taxation v George (2002) 55 NSWLR 511 2002 ATC 4930 51 ATR 130 Deputy Commissioner of Taxation v Keck [2006] NSWSC 677 63 ATR 310 2006 ATC 4377 Deputy Commissioner of Taxation v Moorebank Pty ltd (1988) 165 CLR 55 88 ATC 4443 19 ATR 1156 Deputy Commissioner of Taxation (Cth) v Woodhams (2000) 199 CLR 370 2000 ATC 4141 43 ATR 757 Edwards v Attorney General (2004) 60 NSWLR 667 Evans v Stevens (1791) 4 TR 224 100 ER 986 Ferdinands v Commissioner for Public Employment (2006) 225 CLR 130 Goodwin v Phillips (1908) 7 CLR 1 John v Federal Commissioner of Taxation (1989) 166 CLR 417 89 ATC 4101 20 ATR 1 Kenna & Brown Pty Ltd (in liq) v Kenna (1999) 32 ACSR 430 Lawson v Mitchell [1975] VR 579 Lend Lease Real Estate Investment Limited v GPT Re Limited [2006] NSWCA 207 Leon Fink Holdings Pty Ltd v Australia Film Commission (1979) 141 CLR 672 Letang v Cooper [1965] 1 QB 232 National Roads & Motorists Association v Whitlam [2007] NSWCA 81 Northern Territory v GPAO (1999) 196 CLR 553 Plaintiffs S 157/2002 v The Commonwealth (2003) 211 CLR 476 Refrigerated Express Lines (A/Asia) Pty Ltd v Australian Meant and Live-stock Corporation (No. 2) (1980) 29 ALR 333 Saraswati v R (1991) 172 CLR 1 Southern Star Group Pty Ltd v Byron (1995) 13 ACLC 1622 123 FLR 368 Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290 State Government Insurance Office (QLD) v Crittenden (1966) 117 CLR 412 Switz Pty Limited v Glowbind Pty Ltd (2000) 48 NSWLR 661
Subject references: CORPORATIONS Corporations Act 2001 (Cth) s1318 availability of power to relieve director of liability to penalty under s222AOC of Income Tax Assessment Act 1936 (Cth) legislative history considered possible relevance of s1317S noted STATUTORY CONSTRUCTION reconciling provisions in two Acts of same legislature maxim generalia specialibus non derogant considered TAXATION Corporations Availability of relief under s1318 of the Corporations Act 2001 (Cth) to a director liable under s222AOC of the Income Tax Assessment Act 1936 (Cth) for a penalty in relation to tax moneys withheld from employees under PAYG and not remitted to the Tax Commissioner whether relief under s1318 only applicable in the case of a default or breach of duty arising under the Corporations Act whether Part VI, Divisions 8 and 9 of the ITAA constitute an exhaustive or exclusive legislative scheme or code covering the field whether the mandate of Part VI, Divisions 8 and 9 is inconsistent with the dispensing power under s1318 of the Corporations Act. WORDS AND PHRASES 'default', 'breach of duty'