Guss v Deputy Commissioner of Taxation of the Commonwealth of Australia [2006] HCATrans 628 (10 November 2006)

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Guss v Deputy Commissioner of Taxation of the Commonwealth of Australia [2006] HCATrans 628 (10 November 2006)

Last Updated: 23 November 2006

[2006] HCATrans 628

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M87 of 2006

B e t w e e n -

ANTONY DAVID GUSS

Applicant

and

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Application for special leave to appeal

HAYNE J
HEYDON J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 10 NOVEMBER 2006, AT 10.58 AM

Copyright in the High Court of Australia

MR L.M.F. WATTS: If the Court pleases, I appear on behalf of the applicant. (instructed by Poulton Elliot & Grey)

MR P.J. HANKS, QC: Your Honours, I appear with MS D.M. HARDING for the respondent to this application. (instructed by Australian Government Solicitor)

HAYNE J: Yes, Mr Watts.

MR WATTS: The Court understands that this is an application which concerns the question of whether or not the Administrative Decisions (Judicial Review) Act applies to the review of a decision that has been made to issue a director’s penalty notice under section 222AOE of the Income Tax Assessment Act 1936. In the decision of the Full Court of the Federal Court the court by a majority held that the decision was not one that would be reviewable.

In considering the issues in dispute, their Honours looked at the recent High Court decision in Griffith University v Tang. Their Honours diverged in terms of whether or not the two criteria set for in that decision were applicable in the present case. All their Honours agreed that the decision in question to issue the notice was one that was authorised by the enactment in question. So that issue, being the first criterion which is referred to in Tang would appear not to be an issue.

The second criterion, namely, whether the decision must itself confer, alter or otherwise affect legal rights and obligations is one where their Honours differed. Justice Gyles was satisfied that the decision was one that affected the legal rights or obligations of Mr Guss, Justice Edmonds took the view that it did not and Justice Greenwood took the view that in a practical sense it affected the legal rights and obligations of Mr Guss. He also held that it affected the legal rights or obligations of the Deputy Commissioner of Taxation.

A point of distinction, however, between Justice Gyles and Justice Greenwood is the question of whether or not the two criteria which are set forth in the judgment in Tang constitute the ambit of the criteria which are necessary in order to make a decision one which is reviewable. Justice Gyles in a passage which appears at the application book, page 26, paragraph 17, of his Honour’s judgment held that:

It was a ‘decision’ under an enactment satisfying both criterion laid down by the High Court in Tang. There is no reason to require satisfaction of another criterion.

Justice Greenwood, on the other hand, took the view that in addition to establishing the two criteria that are set forth in Tang, that the reasoning process that leads to the decision must involve a process of substantive reasoning and held that the process of reasoning that was involved in the present case was not such a process of reasoning that could therefore constitute the making of a decision for the purposes of the Administrative Decisions (Judicial Review) Act.

The issue of public importance that the case raises is the resolution of the issue as to whether or not the satisfaction of the two criteria in Tang are sufficient to constitute the making of a decision for the purposes of the Act or, alternatively, whether Justice Greenwood is correct. In his analysis, the decision must reflect a process of reasoning such that there is a substantive decision which has been made.

The second issue that the case raises which is of public importance is the issue of whether or not the decision to issue the notice was a decision which was one that affected the legal rights or obligations of Mr Guss, the taxpayer. The analysis, again, is quite divergent between their Honours, with Justice Gyles readily accepting the fact that the decision was one that did affect Mr Guss’ rights and liabilities - - -

HAYNE J: How do you say it did that?

MR WATTS: The way in which we say that it did that is that whilst the legislation itself created the obligation or the penalty to pay a sum of money under section 222APC and so there is no question that at the relevant time, which was a period after the service of the notice, that the penalty would be applicable. However, the Commissioner could not institute proceedings or alternatively if the Commissioner did institute the proceedings then the section provides a complete defence to Mr Guss unless there has been service of a notice under section 222APE. Thus, in that respect, the Commissioner’s ability to recover the liability is contingent.

Mr Guss had the right certainly to challenge any recovery proceedings unless and until there has been a valid notice issued under section 222APE. The decision to serve the notice in a substantive sense removes then Mr Guss’ right to resist the proceedings which could be brought in order to enforce the penalty. In that sense, it is submitted that it is more than just an affection of Mr Guss’ legal rights or obligations as Justice Greenwood would have it, rather, it does involve for the purposes of Tang a matter that does otherwise affect his legal rights or obligations.

CRENNAN J: That is a defence based on a procedural matter, rather than a substantive matter, is it not?

MR WATTS: The issue of whether or not it is merely procedural or whether or not it is as a substantive matter, my submission brazes a consideration at the interoperation of Subdivisions 8 and 9. There is no question that initially the Commissioner has to form an opinion and make an estimate in terms of service of the notice under section 222AHA to the company to pay an estimate.

The application of Subdivision C of Division 9 initially starts with section 222APA which applies if a company incorporated under the Act becomes liable to pay an estimate under section 22AHA. Once the estimate has been served on the company then the directors of the company are required under section 222APB to do one of four things. We then have, if one of the four things is not done within the 14 day period, the person is then liable to pay a penalty.

However, for the purposes of the decision-maker’s decision to issue a notice under 222APE, the person making the decision is first going to have to determine whether or not there is a situation where the company is liable to pay the estimate. In making that decision, the decision-maker is going to have to determine whether or not, firstly, a valid notice has been issued under section 222AHA, but also, in addition to that, within seven days of that notice being issued, the company then has the ability to serve a statutory declaration on the Commissioner deposing to matters which, if correct, can result in a revocation of the making of the estimate.

HAYNE J: Where in APE do you derive this obligation to consider the matters you have just described? I understand that there are prior steps in the process, some of which may, they may not, I just do not know, be decisions under enactments that would attract AD(JR), but under APE what is it that obliges someone to decide whether there has been a series of earlier steps that accord with the statute?

MR WATTS: In my submission, the obligation comes from the interoperation of section 222APA with section 22APE because - - -

HAYNE J: Does this not point to the narrowness of the question tendered? Do we not first have to understand the joys of this alphabetical subdivision, work out its interrelation and then simply apply known and established principles to the result thus obtained? Now, recognising that there is division in the Full Court about the way in which it should go, nonetheless, why should this Court become involved in the application of known principles, established principles, to the particular intricacies of an interrelated set of statutory provisions of this kind where we are concerned with a notice before action?

MR WATTS: I would characterise it as not simply a notice before action, but rather it is not simply a warning that if you do not do something then proceedings will be issued. Rather, it is the step that creates the ability of the Deputy Commissioner to institute proceedings. Prior to that step being taken, the Deputy Commissioner does not have the ability to institute those proceedings. In terms of why the Court should trouble itself with regard to the application of the principles, the primary issue, in my submission, is the issue that I initially opened with, which is namely whether or not for the requirements of an application before the Administrative Decisions (Judicial Review) Act that there be any additional requirement other than that which is established in Tang, namely, the two criteria.

It is that matter which is of importance because what the divisions and the divergence of opinion between their Honours in the Full Court establishes is that there is not a settled application of whether or not there is any additional criteria, or alternatively, whether the satisfaction of the two criteria mentioned in Tang is all that requires to be established. So that issue is an issue which will not just be applicable to the interpretation of the provisions of this legislation, but is also an issue that can raise itself in any other application where there is a dispute as to whether or not there is additional criteria which is that identified by Justice Greenwood which will be applicable.

At the moment you have quite clearly a divergence of opinion between Justice Greenwood and Justice Gyles. Justice Edmonds does not deal with that issue because he resolves the case by saying that there has not been any effect on the rights or liabilities of the taxpayer or of the director of the taxpayer company. But the matter that is of importance for this Court to resolve is whether the determination of the question of whether or not the Act applies will extend beyond the two criteria.

It is that reason why the Court ought to give special leave. If special leave is not given, then it leaves hanging the question of how this issue is to be resolved. Tang, by itself, on one view, does not resolve the issue. It does not resolve the issue because quite clearly Justice Greenwood took the view that there were additional criteria that were necessary to be applied in resolving the question. On that basis, it is submitted that it is appropriate for this Court to look at that issue and resolve it not only for this case, not only for cases involving such notices, but also in terms of a more general application of administrative law.

The secondary, but less important point, is the point as to whether or not, for the purposes of the Act, the making of the notice in this particular case is simply a matter that is a mere formality consequent upon the issuing of a notice in the form of an estimate to the taxpayer company or whether or not it does involve the determination of a power under the Act, which is a
substantive power, which is that of the decision to send the notice to the director.

That does involve, in our submission, the exercise of a substantive issue. It is an issue that does require more than simply saying a notice was issued to the company; this person is a director of the company. The importance of it is also in terms of the very limited forms of redress that are otherwise available to the director in these circumstances. The director, whilst my learned friends have identified an application could be made under the Judiciary Act, there are very limited means of redress and in circumstances where it can involve a substantial financial penalty it is submitted that it is of importance to determine whether or not a director who is the recipient of one of these notices has an ability to challenge the decision to issue the notice.

That will have a wide application because these notices are common. They are an important part of the administration of the tax regime. In the absence of having the ability to review the decision in the manner in which we say the Court ought to allow, then the forms of redress are extremely limited. It would be wrong for a person who was a director to be in the situation where he has no real ability independent of the company to affect his ability to challenge the decision. If the Court pleases.

HAYNE J: Yes, thank you, Mr Watts. Yes, Mr Hanks.

MR HANKS: Thank you, your Honour. If our learned friend relies upon what is said to be some confusion as to whether the judgment of this Court in Tang exhausts the concept of decision to which this Act applies in the AD(JR) Act, that concern is misplaced. It is, we would say, absolutely clear that the one issue that the Court dealt with in Tang, leaving other issues related to the definition of that term to one side, was whether the decision in question was one made under an enactment. That is made crystal clear in the judgment of the Chief Justice at paragraph 5. It is also borne out in what we will describe as the joint judgment, at paragraph 64.

HAYNE J: Sorry, which paragraph?

MR HANKS: The first paragraph I referred to your Honour was 5, then paragraph 64. In the joint judgment it is said:

This appeal involves particular consideration of the third element –

and that is a reference back to paragraph 59 where three elements in the definition are identified in the joint judgment, the first of those being decision, the second being of an administrative character and the third being under an enactment. Although their Honours cautioned against looking at those two separately, their Honours nevertheless said the matter before the Court was concerned with the third element. That point is brought out just as clearly in Justice Kirby’s judgment at paragraph 134.

HAYNE J: Which of the three elements is absent here?

MR HANKS: What is absent here, your Honour, is a decision. No doubt, if there were a decision, it would be one made under an enactment. The giving of the notice involves the determination of nothing, we say. It does not determine anything. The liability of the director to the extent that it exists does not arise out of the notice. No elements of that liability are crystallised by the notice. The liability arises out of the operation of the Act consequent upon the giving of a notice of an estimate to the company and the failure of the directors of that company to take the steps that are cast on them by this Act.

It is the operation of the Act consequent upon the making of the estimate and the giving of a notice based on that estimate to the company that will create an obligation on the directors to cause the company to do one of four things and if they omit to cause the company to do one of four things, create a liability in each of the directors to make a payment by way of penalty.

HAYNE J: The decision impugned is described here as the decision to issue and serve a notice of directors’ liability pursuant to section 222APE.

MR HANKS: It is, your Honour.

HAYNE J: What is wrong with that description? Where is the error in it?

MR HANKS: Nothing wrong with the description, your Honour, but it is not a decision of the character described by the former Chief Justice, Sir Anthony Mason, in Bond in a judgment to which two other members of the Court added their support, that is, that is a majority judgment of this Court which says that a decision for the purposes of the AD(JR) Act is a decision that determines some matter and it has a substantive operation. This decision has no determinative aspect to it. It determines nothing and, as the primary judge clearly indicated, in the proceedings that would be instituted following the giving of the notice, every element remains to be proved. The giving of the notice does not relieve the Commissioner from the obligation, the burden of proving those elements that would be required to support an order that the penalty be paid.

All the matters that our learned friend has referred to this morning such as whether the estimate was validly made, whether notices were properly served on the company, whether the directors in fact failed to take the steps that are prescribed by the Act, all of those matters would have to be established. The Court would have to be satisfied on those matters on the appropriate burden of proof before an order could be made. So for that reason we say there is no – perhaps more accurately we would put it this way, your Honour. The way in which Justice Greenwood dealt with the matter is patently, we say, correct when one understands how section 222APE operates and its function.

If I might particularly draw your Honours’ attention to this additional matter that we have referred to in our written summary, when one has regard to what this Court said in Woodhams about the purpose of the parallel provision which was 222AOE, your Honours may recall that Woodhams involved a claim which had been upheld by the Court of Appeal in this State by the person on whom a notice under that provision and a notice under APE was served, a claim that the notice was defective because it did not contain sufficient particulars, that being said to be a requirement of each of the notices.

In the judgment of this Court, and it is, as I apprehend, a unanimous judgment, their Honours said that whatever might be said about 222AOE, that requirement was not part of the notice under 222APE. Their Honours then went on at paragraphs 36 and following to consider the purpose of the AOE notice. I am taking your Honours to this very briefly because, although there are differences between the notices, they are in substance very similar. In each case a notice is one that must be given in order to clear the way for the bringing of a proceeding to recover a penalty, the penalty arising under other provisions of the Act. We are told in paragraph 36 that there are two purposes of the notice:

The first purpose of the notice is to inform the recipient of the unpaid amount of the company’s liability under the remittance provisions, and of the recipient’s liability to a penalty in the same amount. The second purpose . . . is to inform the recipient of the alternative courses available –

we would say the steps that the recipient can take to forestall the court proceedings. That is essentially what their Honours are saying, so it is purely an informative notice. It is not a determinative notice. It gives the recipient an opportunity to avoid court proceedings and we would say if that is the purpose of the giving of the notice, then it cannot be described as a notice that determines any substantive issue in the sense that the former Chief Justice, Sir Anthony Mason, posited in Bond. For that reason Justice Greenwood’s analysis entirely disposes of the point that was raised in the Full Court. In our submission, it is patently correct.

Your Honours, those are the matters, I think, that I wish to advance unless there are other questions that your Honours have for the respondent.

HAYNE J: Thank you, Mr Hanks. Yes, Mr Watts.

MR WATTS: The position is that the rights and powers that are vested in the Commissioner in this case do not automatically affect the affairs of a particular director unless a relevant decision is made. There must be a conscious and deliberate thought process on the part of the Commissioner or one or other of his delegates which leads to the issuing of the notice. As such, it is submitted that there is a substantive and deliberative decision that has been made.

It is not simply an automatic consequence and as such, we would be submitting that the two criteria in Tang are satisfied and it really comes back to the question of whether or not there are additional criteria – admittedly, Tang was concerned with the decision of whether or not the decision was one made under an enactment, which it was held it was not. The court did lay down that there were two essential criteria that were to apply and it is a question then of whether or not Justice Greenwood’s additional requirements are applicable to a decision on whether or not the analysis in Tang is sufficient or a satisfaction of the two criteria is sufficient in order to found a right to a review under the Act. If the Court pleases.

HAYNE J: Yes, thank you, Mr Watts.

The question which the applicant would seek to agitate in this Court is confined to whether a decision described as “the decision to issue and serve a Notice of Directors Liability to Pay a Penalty pursuant to section 222APE of the Income Tax Assessment Act 1936 (Cth)” in respect of amounts said to be owing to the respondent by a company is a decision under an enactment for the purposes of the Administrative Decisions (Judicial Review) Act 1977 (Cth).

Section 222APE provides that the Commissioner is not entitled to recover a penalty payable under Subdivision C of Division 9 of Part VI of the 1936 Act until the end of 14 days after the giving of notice of the matters prescribed by the section. The liability to pay a penalty is not created by section 222APE but by other provisions of the subdivision. Whether the recipient of a notice is liable to pay a penalty is to be decided in any subsequent court proceeding. Like the notice considered by the Court in Deputy Commissioner of Taxation v Woodhams [2000] HCA 10; (2000) 199 CLR 370, particularly at 384 [36], the purposes of the notice in issue in this case are to inform the recipient of the claim made and of the courses open to the recipient in response.

The question proffered by the applicant for consideration by this Court turns in critical respects on the application of established principles to particular provisions of the 1936 Act. It has not been demonstrated that any wider question of more general application would fall for consideration. It is not in the interests of justice in the particular case or more generally that there be a grant of special leave. Special leave to appeal is accordingly refused and must be refused with costs.

The Court will adjourn to reconstitute.

AT 11.32 AM THE MATTER WAS CONCLUDED