Citation: Deputy Commissioner of Taxation v Young [2017] NSWDC 146
Court: District Court of New South Wales
Date: 14 June 2017
Judge: Gibson DCJ
Background
The Deputy Commissioner of Taxation brought proceedings against the sole director of a company called Asia Pacific Offsite Pty Ltd (APO) to recover unpaid PAYG withholding liabilities and associated penalties totalling $226,529. The liability arose under the director penalty notice (DPN) regime in the Taxation Administration Act 1953 (Cth), which makes company directors personally liable when a company fails to meet its PAYG withholding obligations. The unpaid amounts related to wages paid to a second individual, who had performed legal and building work for APO.
The director's primary defence was that the second individual was never an employee of APO at all. In response, the Deputy Commissioner obtained leave to join the second individual as a second defendant, bringing the alternative claim that if no employment relationship existed, that individual owed unpaid income tax of approximately $279,744.97. The two defendants did not cross-claim against each other.
The central factual dispute was therefore whether the second individual was an employee of APO during the relevant period. The director alleged that employment documentation, including signed contracts and payslips, had been forged, and raised a series of further fraud-related allegations against the second defendant.
Legal Issues
- Whether the second individual was an employee of APO, triggering the director's personal liability under the DPN regime
- Whether the director's fraud allegations (forgery, joint criminal enterprise, fabricated documents, and suspicious fires) were properly before the court and capable of supporting findings against the second defendant
- Whether the director should be granted leave to reopen his case to lead further evidence after the hearing had concluded
Decision
Employment relationship established. Gibson DCJ found, on the evidence, that an employment relationship did exist between APO and the second defendant during the relevant period. The plaintiff's evidence, including taxation records, an employment contract, payslips, a group certificate, and corroborating documentation, was unchallenged. The plaintiff's witnesses were not required for cross-examination. The court was satisfied that the statutory presumptions underpinning the DPN regime were engaged and had not been displaced by any substantive defence.
Fraud allegations could not be considered. The director had raised a range of serious allegations during the proceedings: that his signatures had been forged on employment documents, that there was a joint criminal enterprise to defraud APO's creditors, that a payment of over $100,000 was mischaracterised, and that the destruction of documents in house fires was convenient and suspicious. However, none of these allegations had been pleaded or particularised in the defence. Relying on Nadinic v Drinkwater [2017] NSWCA 114, Gibson DCJ confirmed that a trial judge cannot make findings of fraud that are consistent with, but go beyond, the case as pleaded, particularly where those allegations were never put to the opposing party in cross-examination. The obligation to plead fraud with specificity is a fundamental requirement of fairness in litigation, and that obligation had plainly not been met.
Leave to reopen refused. After the hearing, the director sought leave to reopen his case and lead further evidence concerning certain bank transactions and documents. Gibson DCJ refused the application. The evidence the director sought to rely on had been available to him before the hearing and was already known to all parties. Moreover, the fraud allegations underlying the proposed new evidence remained unpleaded, and for that reason alone the leave application could not succeed.
Outcome. With the employment relationship established and no substantive defence available, judgment was entered for the Deputy Commissioner against the director. Because the primary claim succeeded, the alternative claim against the second defendant was dismissed.
Orders Made
- Application by the first defendant for leave to reopen his case and lead further evidence refused
- Judgment for the plaintiff against the first defendant for $226,529.00, plus interest
- Plaintiff's claim against the second defendant dismissed
- First defendant to pay the plaintiff's and second defendant's costs
- Liberty to restore in relation to interest and costs
- Exhibits retained until further order
Key Takeaways
- The District Court confirmed that the DPN regime creates personal liability for a company director where PAYG withholding obligations remain unmet, and that statutory presumptions underpinning that liability are conclusive in the absence of a substantive defence.
- A party who wishes to rely on fraud must plead it and particularise it with specificity. Unpleaded fraud allegations, however extensively ventilated in submissions and affidavits, cannot found findings by the court at trial.
- Under Nadinic v Drinkwater, a court cannot make fraud findings that go beyond the case as formally pleaded, particularly where the relevant allegations were never put to the opposing party in cross-examination. The rule applies with equal force to allegations raised in written submissions and oral evidence.
- Leave to reopen a case will not be granted where the evidence sought to be relied on was available prior to the hearing and was already known to all parties. The principles from Aon Risk Services v Australian National University concerning case management and finality remain relevant to such applications.
- Where the Deputy Commissioner pleads alternative claims against two defendants, the alternative claim falls away once the primary claim succeeds. The court dismissed the proceedings against the second defendant once judgment was entered against the first.
Legislation and Cases Referenced
Legislation:
- Taxation Administration Act 1953 (Cth), Sch 1, ss 12-35, 16-70, 16-75, 250-10, 255-5, 269-15, 269-20, 269-25, 269-30, 269-50
- Corporations Act 2001 (Cth), ss 436A, 436B, 436C
- Uniform Civil Procedure Rules 2005 (NSW), r 42.1
Cases:
- Nadinic v Drinkwater [2017] NSWCA 114 (obligation to plead and particularise fraud)
- Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 (case management and reopening)
- Deputy Commissioner of Taxation v Gruber (1998) 43 NSWLR 271
- Seymour v Commissioner of Taxation (2016) 241 FCR 361
- Smith v New South Wales Bar Association (1992) 176 CLR 256
- Morvatjou v Moradkhani [2013] NSWCA 157
- Angel v Hawkesbury City Council [2008] NSWCA 130
- Blacktown City Council v Hocking [2008] NSWCA 144