Deputy Commissioner of Taxation v Nercessian [2006] NSWCA 268 (29 September 2006)

NEW SOUTH WALES COURT OF APPEAL

CITATION: DEPUTY COMMISSIONER OF TAXATION v NERCESSIAN [2006] NSWCA 268

FILE NUMBER(S):
40805/05

HEARING DATE(S): 5 September 2006

DECISION DATE: 29/09/2006

PARTIES:
DEPUTY COMMISSIONER OF TAXATION (Appellant)
Raffie NERCESSIAN (Respondent)

JUDGMENT OF: Mason P Santow JA McColl JA

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 250/04

LOWER COURT JUDICIAL OFFICER: Goldring DCJ

COUNSEL:
D J FAGAN, SC/ R S QUINN
M A BARKO

SOLICITORS:
ATO General Counsel (Appellant)
O'Neill Marengo (Respondent)

CATCHWORDS:
TAXATION – Whether the relevant notices were “given” pursuant to s222AOF of the Income Tax Assessment Act 1936 (Cth) notwithstanding that the Commissioner had not searched return or notice from whence the address was extracted but only searched ASIC’s public database MASCOT – meaning of “ASIC document” in s222AOF(2) – observations on service pursuant to s28A and 29 of the Acts Interpretation Act 1901 (Cth) as alternative mode of service.

LEGISLATION CITED:
Acts Interpretation Act 1901 (Cth) ss28A and 29
Income Tax Assessment Act 1936 (Cth) s222AOC(1), s222AOE, s222AOF, s222AOG
Taxation Administration Act 1953 s8AAZB

DECISION:
Appeal allowed with costs; see orders at [37].

JUDGMENT:

3 The primary judge, Goldring DCJ, answered that question in the negative. His Honour did so in circumstances where:

4 The DCT, having obtained leave to appeal, challenges the primary judge’s determination on these and other grounds. This appeal turns primarily upon the proper construction of the statutory scheme in the ITAA described below.

5 First some context. Where a company fails to remit monies due under its taxation obligations, penalties can be imposed by the Tax Commissioner on its directors, provided the statutory conditions in the Act are fulfilled. Upon the Commissioner giving 14 days notice to the relevant director pursuant to s222AOF ITAA, that director is rendered automatically “liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company’s liability” pursuant to s222AOC(1). Section 222AOE provides that the Commission is not entitled to recover that penalty unless it has first given written notice to the directors setting out “details of the unpaid amount of the liability” and the options available. The penalty is then automatically remitted if the company meets its obligations or takes other remedial action within fourteen days after the notice is given; s222AOG.

6 Before commencing the recovery proceedings the subject of this appeal the DCT was required to give to the respondent director Raffie Nercessian three Director Penalty Notices (“DPN’s”). The first was dated 2 August 2002 and the second and third 3 June 2003. These covered PAYG deductions made but not remitted by the company of which he was a director, CJN Enterprises Pty Ltd (“CJN”).

7 It is undisputed that the relevant officers of the ATO obtained the address to which the notices were posted solely from a MASCOT search of the ASIC database carried out within seven days prior to sending the DPN in each case.

8 The requirements for how notice “may” be given are laid down by s222AOF, which appears below, first in the form in which that provision appeared as at 2 August 2002 and then its later form as at 3 June 2003:

(1) If it appears from ASIC documents that a person is, or has been within the last 7 days, a director of the company, the Commissioner may give the person a notice under section 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 7 days, the person’s place of residence or business.

(b) lodged with a person under a law that, for the purposes of the Corporations Act 2001, is a previous law corresponding to section 242 or 335 of that Law.

(b) lodged with a person under a law that, for the purposes of the Corporations Act 2001 , is a previous law corresponding to section 205B or 345 of that Act.

9 Quoted below are ss28A and 29 of the Acts Interpretation Act 1901 (Cth). McDougall J observed in Deputy Commissioner of Taxation v Keck & Anor [2006] NSWSC 677 at [33] that these provisions of the Acts Interpretation Act provide a further statutory presumption or facultative provision deeming service to have occurred. This is a proposition disputed by the respondent. It appears not to have been dealt with below or even argued, apart from a passing reference to s29. It is however relied on in this appeal by the DCT as an alternative basis for contending that s222AOF was satisfied and was the subject of supplemental written submissions from both parties.

(1) For the purposes of any Act that requires or permits a document to be served on a person, whether the expression “serve”, “give” or “send” or any other expression is used, then, unless the contrary intention appears, the document may be served:

(ii) by leaving it at, or by sending it by pre-paid post to, the address of the place of residence or business of the person last known to the person serving the document; or

(b) on a body corporate—by leaving it at, or sending it by pre-paid post to, the head office, a registered office or a principal office of the body corporate.

(a) affects the operation of any other law of the Commonwealth, or any law of a State or Territory, that authorizes the service of a document otherwise than as provided in that subsection; or

(b) affects the power of a court to authorize service of a document otherwise than as provided in that subsection.

(1) Where an Act authorizes 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.

11 CJN failed to pay certain amounts of PAYG tax. Monies were withheld from employees but not remitted to the ATO. CJN was the trustee of a trust called the CJN Enterprises Family Trust. Section 8AAZB Taxation Administration Act 1953 (“TAA”) requires the Commissioner to treat a trustee that acts in more than one capacity as a separate entity for each capacity.

12 The opponent was the director of the company, which has since been deregistered. Under s222AOC(1) of the Act, company directors are liable to pay unpaid amounts. The ATO sought to impose liability on this basis. The relevant legislation lays down a procedure whereby a director can be given notice under s222AOE, such that the tax owing can be recovered from the Director after 14 days have passed. Section 222AOF, dealing with service, is quoted above in its versions of August 2002 and June 2003; the differences are not of significance for the purposes of this appeal.

13 Three notices (one on 2 August 2002 and two on 3 June 2003) were sent by the ATO in relation to recovering the penalty arising from the unpaid withholding tax. Both were sent to Raffie Nercessian at the address 46 Albany St Point Frederick New South Wales 2250, which was recorded in the MASCOT database. Mr Rowe and Ms Bei of the ATO gave evidence that they sent these notices to the address listed on the relevant ASIC entries in the MASCOT database, via searches of that database conducted within seven days of the notices being sent. There is no dispute as to that.

14 The primary judge referred to what the Court of Appeal decided in Gruber (supra) and sought to distinguish it in these terms:

15 In result, the primary judge gave judgment for the respondent Raffie Nercessian, concluding as above.

16 It was frankly acknowledged by the respondent that there was no evidence to indicate that the result of the MASCOT search would have been at variance with any return or notice filed with ASIC. The affidavits filed by ASIC’s officers describe the searches that were done via ASIC’s database, currently called MASCOT. There was nothing in those materials or from the respondent from which one could safely infer that there was any such variance. Thus in relation to the first DPN of 2 August 2002, as at 2 August 2002 that database showed the address of Raffie Nercessian as 46 Albany Street, Point Frederick, New South Wales 2250. The relevant reference is numbered OE6478842 and identifies a filed notice entitled “Notification of Change to Office holders of Australian Company”. That is clear from the affidavit of Yuen Mei Bei an officer of ASIC and what appears under the heading “org extract” in the MASCOT database attached thereto (see under Tab 11).

17 The position of the two DPN’s of 3 June 2002 is not materially different, according to the affidavit of the relevant ASIC officer-holder, David John Rowe. Thus Tab 12 contains an extract from the MASCOT database headed “Org Extract”. Again, the opponent’s address is shown as 46 Albany Street, Point Frederick, New South Wales 2250.

18 The definition of “ASIC document” in the earlier version of s222AAF described it as “a return” “lodged ... under s242 or s335 of the Corporations Act 2001”.

19 In the later version of s222AOF as at 3 June 2003 reference is again to “a return”, this time “lodged ... under s205B or s345 of the Corporations Act 2001”. Those are the counterpart provisions to s242 and s335 of the Corporations Act 2001.

21 Essentially s205B of the Corporations Act relevantly requires lodgement of a “notice” (no longer referred to as a “return” in contrast to the previous s242) of a new director with their “personal details” including “their address”. Any change in those details must be lodged within 14 days. (As s345 deals with the lodgement of a company’s annual return, it is not relevant for present purposes.)

22 The respondent contends that the provisions of s222AOF in either version are clear and unambiguous; that they make it mandatory for ASIC to have searched the relevant return or notice. This is said to be because “ASIC document” in s222AOF(2) is defined to mean “a return lodged ...”. The respondent submits that it is his residential or business address as recorded in that return that must be actually sighted by the Commissioner’s staff within the seven days preceding the Commissioner forwarding the relevant notice by post for s222AOF to be satisfied; respondent’s written submissions para 3.

23 But this proposition is clearly contrary to the conclusion reached by Stein JA in Gruber at 277, concurred in by both Powell JA and Sheppard AJA:

24 Although those observations were dicta, since the conclusion reached was that the notices were invalid by reason of errors in the notices, I consider that this reasoning was clearly correct.

25 The primary judge also appears not to have appreciated that the facts, though not elaborated in the Court of Appeal judgment, were clearly enough stated in the judgment below. It was given by Graham AJ in Deputy Commissioner of Taxation v Gruber (1997) 14 FLR 322. He deals with the facts (at 335) under the heading “Were the notices given to the defendant?”.

26 Thus it is clear that the Commissioner in Gruber as here did effect searches of the ASIC database. It happened to be known by the acronym ASCOT which was the predecessor database to MASCOT; but nothing hangs on that. These searches, in not extending to the return or notice, were said by Graham AJ as precluding the Commissioner from claiming the benefit of s222AOF(1) of the Act. In Gruber, the relevant ASCOT search had shown two different addresses for the defendant, without any indication that either was his place of residence or place of business. The Court of Appeal in Gruber reversed that element of his decision and dealt specifically with the searches. In particular Stein JA rejected Graham AJ’s construction of s222AOF(1) (which required the Commissioner to look beyond the ASCOT database) in the passage quoted.

27 The primary judge (at [5]) declined to follow Stein JA’s reasons, perhaps not appreciating that it was a unanimous decision as Powell JA also concurred (see errata in the official law reports). The primary judge explained that:

28 The actual procedures in Gruber were, contrary to what is said by the primary judge, perfectly clear from the judgment of Graham AJ and can be taken to have been well understood by the Court of Appeal, though not repeated. I respectfully observe that the primary judge should have adopted the same approach as McDougall J in Keck (supra) at [29]. There His Honour concluded that, while recognising this part of the reasoning in Gruber was obiter he “should be slow to ignore considered statements, even by way of obiter dicta, of the Court of Appeal on legislation that is directly in point”.

29 Moreover, when the interaction between the facultative provisions of either version of s222AOF are read with the provisions of (relevantly) s205B of the Corporations Act 2001 there is simply no warrant in the words of s222AOF to require the Commissioner to actually search beyond the MASCOT database. This must be so, even were such a search practicable. To require a search beyond the standard procedure of searching the relevant database (MASCOT or earlier ASCOT) would entail at the very least considerable inconvenience to the point of impracticability. What is the point of having a national ASIC database, accessible by remote search, if one must go to the original filed document?

30 But in any event, I consider that the definition of “ASIC document” as meaning “return” which is “lodged with the Australian Securities and Investments Commission” under the relevant section encompasses the relevant contents of such a return or notice when extracted onto an ASIC database and accessible to search in the ordinary course. That the current version of s205B refers to “notice” whereas its predecessor used the expression “return”, but only until 9 December 1995, reinforces that interpretation; it demonstrates that no great emphasis should be placed on s222AOF’s use of the word “return”.

31 Therefore, in terms of s222AOF, the relevant notices were “given” to Raffie Nercessian by sending them by post to the address that “appears” from the ASIC documents (being the MASCOT database) to be his place of residence, as established by the DCT’s search of that database. That satisfies the requirements of s222AOF in either form.

32 It is therefore not necessary for me to resolve whether there was an alternative basis for the giving of notice and whether it was satisfied, by reference to the provisions of ss28A (and 29) of the Acts Interpretation Act 1901 (Cth). I observe however that in Kiff v Deputy Commissioner of Taxation [2005] QDC 456 Wall, QC DCJ concluded that not only was s222AOF satisfied though reference had only been made to the MASCOT database, but likewise service was validly effected in conformity with ss28A and 29 of the Acts Interpretation Act. McDougall J in Keck at [7], [16]-[20] reached much the same conclusion. However, as I explain below, there is a factual as well as legal dispute bearing on the application of s28A. While the legal aspects may be resolved in this appeal I do not consider the factual ones can be.

“5.1. It was sent by prepaid post to 46 Albany Street, Point Frederick NSW on 2 August 2002 [affidavit of Ms Bei, Tab 11, paras 18 and 19 and Annexure G at p.23].

5.2. The Commissioner, through Ms Bei, knew that to be the Opponent’s address, firstly through contemporaneous MASCOT search [affidavit of Ms Bei, Tab 11, para 18, Annexure B at p.11 and Annexure H at p.24].

5.3. Secondly, Ms Bei knew that to be the Opponent’s address through having sent a Notice to him at the same address on 8 July 2002 [her affidavit, Tab 11, paras 2-8] and subsequently having had a response from him by telephone [paras 11 and 12 and Annexure E at p.18]. The strong inference from the phone call is that Mr Nercessian had received the document at the address to which it was sent and that that was therefore “his place of residence or business”.

5.4. Although in the file note which is Annexure E Ms Bei recorded that Mr Nercessian “advised to change postal address”, this request does not rebut the inference that the earlier (8 July 2002) notice addressed to 46 Albany Street, Point Frederick had found him at “his place of residence or business”.

5.5. The further inference is that, as at 2 August 2002, when the first of the notices relevant to the appeal was sent, 46 Albany Street was, by virtue of the above circumstances, the “last known” address of Mr Nercessian’s residence or business, so far as the Commissioner was concerned.

6.1. Again these notices were sent by prepaid post to 46 Albany Street [affidavit of Mr Rowe, Tab 12, paras 4 and 5].

6.2. The Commissioner, through Mr Rowe, knew that to be the Opponent’s address, first, through contemporaneous MASCOT search [affidavit of Mr Rowe, Tab 12, para 7 and Annexure C at p.11] and, secondly, through the knowledge Ms Bei had acquired by the means identified in para 5 above.

35 To this the respondent submits (paras 7 to 9 of its written submissions of 12 September 2006) that there was evidence which indicated that the DCT was aware, or at least on notice, that the MASCOT database address was not the last known place of residence of Raffie Nercessian. Thus at paras 7 and 8:

“7. The first director penalty notice the subject of the original claim was posted by Ms. Yuen Mei Bei on 2 August 2002 (see paragraphs numbered 13-18 of her affidavit sworn 10 March 2005 – Document 11 of the White Folder). Ms. Bei relied upon a search of the ASIC database to obtain an address for the Opponent (see paragraph numbered 18). Ms. Bei gave evidence that before she had posted the said notice she understood the “last known address” for the Opponent was the address provided by the Opponent over the telephone on 12 July 2002 (see transcript of 15/9/05 at pages 20-22 and particularly page 22 at line 52 – Document 7 of the White Folder). Ms. Bei went on to state that she did not rely upon this “last known address” for the purposes of service of the director penalty notice but rather relied upon the “Mascot” update/address (see transcript of 15/9/05 at page 23).

8. The second and third director penalty notices the subject of the original claim were posted by Mr. David John Rowe on 3 June 2003 (see paragraphs numbered 2-7 of his affidavit sworn 11 March 2005 – Document 12 of the White Folder). Mr. Rowe also relied upon the ASIC database to ascertain the address for service of the notices.”

36 Because this mode of service was not relied upon in argument below beyond passing references to s29 of the Acts Interpretation Act, and because this matter involves a factual dispute that could not now be resolved on appeal, I make no finding as to the application or otherwise of s28A. Dealing only with the legal arguments for or against the potential application of s28A, I would express the provisional view that s28A (and s29) are capable of application as alternative modes of satisfying s222AOF ITAA where the notices are posted in conformity with those provisions to the last-known place of address.

37 I consider that the appeal should be allowed and propose the following orders:

*Date*	*Legislation*
1 Jan 91	· Commencement of Corporations Law (NSW).
	· s242 provided for the keeping by a company of a Register of Directors or Officers; sub-s.(7) required a company to lodge with *“the Commission”* (defined as the ASC) a “return” of particulars of directors, within a month after incorporation or after any change.
	· s335 provided for lodgement of *“an annual return”*.

16 Jun 93	Commencement of s222AOF, inserted by s16 of Act No. 32 of 1993, with the following definition: “‘ASC document’ means a return lodged with the Australian Securities Commission under section 242 or 335 of the Corporations Law of a State...”.
9 Dec 95	· s242, Corporations Law (NSW) entirely replaced: now required lodgement *“with the ASC”* of a “notice” of the personal details of each company officer, within *“one month”* after registration of the company or after any change in particulars.
	· s335 modified by insertion of sub-s(1A) and (1B) requiring that a proprietary company’s annual return be lodged with *“the Commission”* by 31 January each year.
1 Jul 98	· s242, Corporations Law (NSW) amended, to require lodgement with *“ASIC”* of a *“notice”* of particulars of each director or officer within *“14 days”* of an appointment or change of particulars.
	· s335, Corporations Law (NSW) renumbered *“s345”* and amended, to require that a company’s annual *“return”* be lodged with *“ASIC”* by 31 January each year. By sub-s(4) the obligation to lodge *“notices”* under, inter alia, s242 ceases upon the lodgement of the annual return if it provides the s262 information.
13 Mar 00	· s205B, Corporations Law (NSW) enacted to replace s242, in substantially the same terms but adding a requirement that *“notice”* be lodged with *“ASIC”* of the details of alternate directors.
15 Jul 01	· Corporations Act, 2001 (Cth) commenced, replacing Corporations Law (NSW).
	· s205B, Corporations Act was enacted in the same terms as s205B, Corporations Law (as in force immediately before 15 July 2001).
	· s345, Corporations Act was, similarly, enacted in terms identical to those of s345, Corporations Law, as in force immediately prior to 15 July 2001.

15 Jul 01	ITAA 36, s222AOF amended only by changing “section 242 or 335 of the Corporations Law of a State” to read *“s242 or 335 of the Corporations Act, 2001”.*
15 Dec 01	· s205B, Corporations Act, 2001 modified (relevantly for present purposes) in sub-s.(5) and with the addition of sub-s(6) concerning *“notice”* to *“ASIC”* of a person ceasing to be a director.
	· s345, Corporations Act, 2001 modified by the addition of sub-s3A re strict liability offences.

2 Aug 02	Service of the Director Penalty Notice concerned in Grounds 1 and 2 of the appeal.

3 Jun 03	Service of the Director Penalty Notices concerned in Grounds 3 and 4 of the appeal.
1 Jul 03	· s205B, Corporations Act, 2001 amended by increasing the time for lodgement of “notice” of particulars of directors and officers with “ASIC”, from 14 to 28 days.
	· s345, Corporations Act, 2001 replaced by ss345A-346C, pursuant to which ASIC is required to give notice to each company of an *“extract of particulars”* within two weeks from a review date in each year and the company must *“respond”* with any necessary correction within 28 days.

1. Up to 15 July 2001, when the Corporations Act replaced and re-enacted the Corporations Law, s220AOF had not been amended:

1.1. on or after 1 July 1998 to reflect the change of numbering from s335 to s345, Corporations Law (NSW) or

1.2. on or after 13 March 2000 to reflect the replacement of s242, Corporations Law (NSW) with s205B.

2. As at 14 July 2001: With the aid of s10A, Acts Interpretation Act 1901 and having regard to the above legislative history, the reference in s222AOF(2) to “a return lodged with the Australian Securities Commission under section 242 or 335 of the Corporations Law of a State” would have been interpreted as a reference to a “notice” under s205B, Corporations Law or a “return” under s345, Corporations Law, as appropriate.

3. On 15 July 2001: When s222AOF was amended only by changing the reference “Corporations Law of a State” to “Corporations Act 2001”, the clear legislative intention was to refer to sections of the Corporations Act 2001 equivalent to those of the Corporations Law which, immediately prior to 15 July 2001 had been referenced in s222AOF (upon its proper construction in accordance with s10A, Acts Interpretation Act 1901). That is, ss205B and 345.

4. After 15 July 2001: s10, Acts Interpretation Act 1901 operates, with the consequence that the form of s205B and s.345, Corporations Act 2001 as amended from time to time “shall” be taken to be referred to.

LAST UPDATED: 20/11/2006

Supreme Court of New South Wales - Court of Appeal

Deputy Commissioner of Taxation v Nercessian [2006] NSWCA 268 (29 September 2006)