Stojic v DCT – director fails in action to ‘judicially review’ the Commissioner’s decision to refuse payment (of DPN liabilities) by instalments – no need to give director notice of a need for security

The Federal Court has dismissed a director’s application, to judicially review the Commissioner’s decision, to refuse payment of his DPN liabilities, by instalments. The Commissioner has power to accept instalment arrangements, under s255-15(1) of Sch 1 to the Taxation Administration Act 1953 (TAA1). The Commissioner refused his request, on the basis that his proposal did not offer security, for payment of the instalments.

The director claimed that the Commissioner had breached his obligation, to make this decision, in accordance with the rules of Natural Justice. In particular, he said, this requires the Commissioner to give him notice, that lack of security could prejudice the chances of a favourable decision, so that he (the director) had an opportunity to be heard, on the subject.

Background

To understand this, however, more background is required.

1. The director’s company owed the Commissioner amounts for the PAYG, that it withheld, from employee’s salary and wages (PAYGw) and had not remitted to the Commissioner. The reasons, for this decision, do not say how much the Company owed, but it must have been quite a lot, as the Commissioner issued collection proceedings, against the director, for over $500k [para 17 of the reasons], which was under the Commissioner’s Director’s Penalty Notice (DPN) powers, in Div 269 of the TAA1. And the Company’s liabilities must have been more like $700k, because it had previously made payments totalling $200k, towards its own liability [para 13]. There is no indication, in this judgement, whether the Company had been involved in ‘phoenix’ style failure to remit withheld PAYGw payments, or anything else, that was particularly egregious.
2. The Company made three proposals, in 2016, for it to pay this liability, by instalments. Indeed, s255-15 did not limit the number of times a taxpayer could propose payment by instalments. The Commissioner’s debt collection officer refused the first two instalment proposals, but he accepted the last one [para 6]. The Company honoured the resulting payment plan, by making the first two payments, of $100k, but then defaulted, and made no more payments [para 13].
3. In the first half of 2016, also, the Commissioner issued garnishee orders to Westpac [para 14], collecting a little over $150k [para 17] of money that would otherwise have been paid to the Company.
4. Also, in 2016, the ATO was pursuing the director, personally, and issued three DPNs, (which are the precursor to the director being personally liable) [para 16]. Finally, on 9 February 2017, the Deputy Commissioner of Taxation (DCT) commenced recovery action against the director, for his DPN liabilities [17].
5. The director, also sought time to pay, by making proposals for payment by instalments [paras 1, 2, 18 & 26]. Both were refused [para 24 & 27] and it was the second refusal that was the subject to Judicial Review, for breach of the rules of natural justice. It was the same debt collection officer who decided, when to refuse the instalment requests, by both the Company and the director.
6. The Commissioner had issued a Practice Statement to staff on how they should exercise various debt collection powers, including the power to accept payments by instalments, under s255-15 of the TAA1. This was (and still is) in PS LA 2011/14.
7. There was a common theme, to the refusals, which included both poor compliance history and lack of capacity to pay the proposed instalments [paras 7, 9, 24].
8. The Company’s ‘compliance history’ was bad – it had not lodged its 2013, 2014 & 2015 income tax returns (as at the first refusal, on 10 March 2016). It had not paid its last three BAS payments, up to the quarter ended 31 December 2015. Neither was it paying its current taxes [para 7]. Further, by the time the Company had defaulted, on the approved instalment plan, there was an extra ‘poor compliance history’ item.
9. One of the director’s grounds, for judicial review, was that the Commissioner, had taken into into account an ‘irrelevant consideration’, by taking into account the Company’s prior poor compliance history (when determining his liability) [para 91]. The Court dismissed this, because the director had been closely involved with (if not solely responsible for) the Company’s poor compliance history.

Judicial review for failure to give notice that security may be required?

Of far greater interest, is the argument that the director was entitled to notice, if the Commissioner now thought a proposal for ‘security’ might be material to him reaching a favourable decision on a proposal to pay by instalments.

1. There was no dispute that the Commissioner had the power to take security or that he was entitled to consider whether an instalment proposal offered security. Likewise, there was no dispute that PS LA 2011/14 dealt with the Commissioner’s power to take security and that an offer of security was relevant to a decision on accepting payment by instalments. The terms of the Practice Statement were relevant, as Commissioner had repeatedly brought them to the attention of both the Company, and the director, in his correspondence with them.
2. On the face of it, the director had a point, in that none of the 5 instalment proposals, had offered ‘security’, and it was only in the last of the Commissioner’s decisions, that security was mentioned at all (much less as ‘material’).
3. The director framed his case, on the basis that his second proposal was a continuation of the first, and the emergence of ‘security’ as an issue, was a ‘new issue’ for judicial review purposes, requiring the Commissioner to give him notice of the new issue (so that he had an opportunity to be heard) [see para 64 and the immigration cases, referred to, of Haocher and SZBEL].
4. The Court noted, that it might be ‘good administration’ to give a taxpayer/director notice that security might be needed [para 69].
5. But the Court was not prepared to find that the Commissioner had a duty to give notice, that lack of security might endanger the chances of him favourably considering the instalment proposal.
6. This was partly in the overall administrative context, in which the power to accept instalment payments, existed.
7. And, in particular, the Court noted that the ‘new issue’ point, applied in those cases, because the second decision was a review of the first decision and that there were not endless opportunities for review [para 76]. Indeed, after being told that the 2nd proposal failed for want of security, there was nothing stopping the director making a third proposal, that did offer security. Alternatively, he could have less formally made submissions as to why security was not needed.

After review, the Federal Court dismissed the director’s application.

This was an interesting way to counter a refusal, by the Commissioner, of an instalment payment proposal. But, even if successful, it might have given the director only a ‘pyrrhic’ victory. This is because the Commissioner could readily rectify the problem. He could give the director notice that he now thought an offer of security could be material to him agreeing to a proposal to pay by instalments. The director could then be heard on the subject (before, probably, reaching the same negative decision).

(Stojic v DCT [2018] FCA 483, Federal Court, Thawley J, 19 April 2018.)

Study questions (answers available)

1. Did the case relate to the Company’s failure to remit PAYGw?
2. Did the Company make 2 offers to pay by instalments?
3. Did the Company pay $100k before defaulting?
4. Was the director liable, for the company’s PAYGw debt, under the DPN provisions?
5. Were these recovery proceedings?
6. Was it the fourth, of the director’s instalment proposals, that the Commissioner rejected, for lack of security?
7. Was this the first time lack of security was mentioned?
8. Did the director argue, that the Commissioner should have given him notice of this ‘new issue’ (the rise of ‘security’ as a potentially material consideration), so he had a chance to respond?
9. Did he succeed?