Chief Collector of Taxes v Dickson Panel Works Pty Ltd and Davis Consolidated Pty Ltd [1988-89] PNGLR 186 (18 October 1988)

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[1988] PNGLR 186 - Chief Collector of Taxes v Dickson Panel Works Pty Ltd and Davis Consolidated Pty Ltd

PRACTICE AND PROCEDURE - Service of process - Service on company - Service at registered address - Registered address post office box number - Box number ceasing to be registered address - No record of change of address - No evidence of notice of non-delivery - Whether service sufficient - Companies Act (Ch No 146), s 394(1).

COMPANIES - Service of documents on - Service of process - Sufficiency of - Service by post - Service at registered address - Registered address post office box - Box number ceasing to be registered address - No evidence of notice of non-delivery - Service good - Companies Act (Ch No 146), s 394(1).

PRACTICE AND PROCEDURE - Application to set aside judgment by default - Costs on - Service of writ irregular - Defendant entitled to costs - Service regular - Defence on merits pleaded - Application allowed - Defendant to pay plaintiff’s costs thrown away by entering judgment.

INCOME TAX - Collection and recovery - Proceedings for recovery - Conclusiveness of notice of assessment - Judgment by default - Defence on merits not available - Income Tax Act, s 239(1).

“In addition to any other method of service provided for by or under this Act, or any other law, a document may be served on the company by leaving it at, or sending it by post to, the registered office of the company.”

“The production of a notice of assessment, or of a document under the hand of the Chief Collector or an Assistant Collector purporting to be a copy of a notice of assessment, is conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all particulars of the assessment are correct.”

The Chief Collector of Taxes sent writs for unpaid income tax based on assessments issued by him to defendant companies at a post office box number being the registered office for those companies as shown on the records of the Registrar of Companies. The Chief Collector having entered judgments by default, the defendant companies sought to set aside the judgments, on a number of grounds, including irregularity of service in that the post office box number was no longer the registered address of the companies and a defence on the merits insofar as some of the assessments of income tax were wrong.

(1) Service of a document (including a writ) on a company by prepaid post to its registered address where that address is a post office box is good service under 394(1) of the Companies Act (Ch No 146) even though the box number is closed, unless the plaintiff has actual notice of non-delivery: evidence of non-receipt in the absence of evidence of notice of non-delivery is insufficient.

A/S Cathrineholm v Norequipment Trading Ltd [1972] 2 QB 314, adopted and applied.

(2) Where service of a writ is irregular, a default judgment will be set aside ex debito justitiae and the defendant will get his costs. Where, however, service is regular and the defendant seeks to set aside the judgment because he has a good explanation why he allowed the judgment to go by default and has a defence on the merits, the judgment will only be set aside on the condition that the defendant pay the plaintiff’s costs thrown away by entering the judgment.

(3) Where an application is made to set aside a judgment by default in respect of unpaid income tax based on assessments issued under the Income Tax Act, s 239(1) of that Act precludes the defendant from alleging a defence on the merits going to the correctness of the assessment.

Post and Telecommunication Corporation v Takoa Pastoral Company Pty Ltd [1985] PNGLR 44.

The following additional case is referred to by way of footnote: Chief Collector of Taxes v T A Field Pty Ltd [1975] PNGLR 144.

This was the hearing of five applications by related companies to set aside judgments by default entered against them, the applications being made under the National Court Rules, O 1, r 9.

BREDMEYER J: This is an application to set aside five default judgments against South Pacific Shipping Pty Ltd, Territory Fibrous Plaster and Acoustic Tiles Pty Ltd, Dickson Panel Works Pty Ltd, Tomay Investments Pty Ltd, and Davis Consolidated Pty Ltd. In all cases the writs were posted to those companies at PO Box 1170, Boroko in May 1988; in three cases on 6 May and in two cases on 19 May.

Counsel for Mr Davis has argued that the method of service is inadequate and that the companies in fact never received the writs. I have received oral and affidavit evidence on that issue. The Companies Office files for each company were tendered to me. The files for South Pacific Shipping, Territory Fibrous Plaster and Tomay Investments, show the registered addresses as Lot 25 Section 32, Dogura Rd Boroko, PO Box 1170, Boroko. The latest company returns for those companies were lodged in 1982. The Company Office file for Davis Consolidated, a company which was incorporated in April 1984, shows the registered office at Lot 35 Section 32, Boroko, PO Box 1170, Boroko. Oral evidence from Mr Davis shows that Lots 25 and 35, Section 32, Boroko, are in fact side by side lots; they are part of a consolidated lease and together form the premises for his car wrecking yard at Six Mile.

So in four of the companies the files of the Registrar of Companies show the registered address to be Mr Davis’ Six Mile address and the Box number as 1170, Boroko. The registered office of the fifth company, Dickson Panel Works, as per the Registrar’s file, is 19 Spondias St, Hohola PO Box 5993, Boroko. The last annual return for that company was filed in August 1980, and as at that date Mr Davis is not shown as a director of the company. The files for these five companies have been with the National Court since 1985 probably in connection with the massive litigation spawned by Mr Davis’ arrest in July 1985 for suspected receiving of stolen car parts. I accept the Registrar of Companies’ evidence that, despite the fact that the files have been missing from his office, a matter of which he was unaware, company returns can be lodged in the absence of the files; but, in fact none were. Mr Davis said he thought all his company returns were up to date at least to 1984, when he formed Davis Consolidated, a family holding company to hold all the shares of the other companies, and he said the files which I have may have been tampered with as many returns are missing. I do not believe that evidence. I consider that the files I have are accurate, that the companies were behind with all their returns, that Mr Davis ignored reminder letters to get up to date, and that the formation of the holding company and its effect on the other companies was not properly notified to the Registrar. There is some correspondence about the holding company on one of the files but it has not been followed through by annual returns or change of share holdings in the other companies.

I deal now particularly with Dickson Panel Works. As I have said its registered office was 19 Spondias Street, Hohola, Box No 5993, Boroko. That is as per the company’s return to the Registrar in 1980. The fact is the events have changed since then. Number 19 Spondias Street, Hohola is the address of Frank De Graaf, Public Accountant, and in 1984 he wrote to the Chief Collector of Taxes saying he no longer acts for the company. And Box 5993 is no longer held by Dickson Panel Works nor has any connection with its director Mr Joe Davis. The writ of summons was posted to the company at PO Box 1170, Boroko and, as that was not the registered address as shown on the return filed with the Companies Office, that was not correct service under s 394(1) of the Companies Act (Ch No 146) and I set aside that judgment with costs to the defendant. The writ is still good and if the Chief Collector wishes to apply for substituted service, I will grant it. A company should not be able to escape service by having no current address or Box number.

I turn now to the four remaining companies. Prima facie service on the other four companies was served on the registered address as shown by the Registrar’s files. Section 394(1) of the Companies Act (Ch No 146) provides:

It has long been accepted that a “document” in that section includes a writ. This should be read in conjunction with s 5(3) of the Interpretation Act (Ch No 2) where service at a Post Office address shall be deemed to have been effected when the document would in the ordinary course of events have been collected. These two sections are copied or adapted from Australian and English sections and so cases from those countries are relevant. In England if the company has failed to give notice to the Registrar of Companies of its new registered office and a writ is served on the old one, and the plaintiff has no knowledge that it has not been delivered, then the judgment by default will not be set aside ex debito justitiae. It may be set aside if an affidavit shows a defence on the merits. But then the defendant will pay the costs thrown away. The authority for that is A/S Cathrineholm v Norequipment Trading Ltd [1972] 2 QB 314. It is a judgment of the Court of Appeal chaired by Lord Denning MR, and in that he expressly disapproves of the case of Thomas Bishop Ltd v Helmville Ltd [1972] 1 QB 464 which was quoted to me by counsel for the defendant companies. Although Cathrineholm is a 1972 case, it is quoted in the latest edition, of Palmer’s Company Law (24th ed, 1987), vol I, par 8-13. It appears to be still the law in England. In that case a specially endorsed writ was issued for £6,609.49 and was sent by prepaid post to the registered office of the company at 34-35 Norfolk Street, London W C 2. It was sent on 21 July. Unknown to the plaintiff the company had moved office and when the postman went there to deliver the envelope containing the writ the building was closed, in fact demolition people were there smashing the building down. The defendant company had not got its notices up to date with the Companies Office and had not complied with the law of notifying a change of address within 14 days. The writ was posted on 21 July and on 5 July the demolition contractors had moved in. However, the letter was not returned to the plaintiff’s solicitors and they had no notification that the writ had not been received. The defendant applied to have the judgment set aside ex debito justitiae on the ground that it was irregularly entered. If he succeeded he would get his costs. On the other hand, if he got the judgment set aside because of a defence on the merits and so on, then he would have to pay the costs of the plaintiff thrown away by entering the default judgment.

“... when the plaintiff sends a copy of the writ by prepaid post to the registered office of the company, and it is not returned — and he has no intimation that it has not been delivered — it is deemed to have been served on the company — and to have been served on the day on which it would ordinarily be delivered. If no appearance is entered in due time, the plaintiff is acting quite regularly in signing judgment. If the defendant should seek to set it aside, he ought to explain the circumstances and go on to show that he has merits, that is, that there is a triable issue.

In this case the plaintiff signed a perfectly regular judgment. The defendants have brought it all on themselves by their own fault. They did not enter the change of address on the register as they should have done. If they wish to set aside this judgment, they must show merits.”

He then referred the case back to the Master to decide if the judgment should be set aside on the merits.

Now I consider that that is the law in this country. But I also cite an Australian case, Re Rustic Homes Pty Ltd (1988) 6 ACLC 931, a judgment of Von Doussa J of the South Australian Supreme Court, in which he cites the English cases I have quoted and a number of High Court cases. In that case the notice of a writ was sent by post and was returned “return to sender” in the post. So there was actual evidence of non-delivery and therefore service was not good. There is a difference in principle between non-delivery and non-receipt. If it is non-receipt because the defendant has closed his box number or because the building has been demolished, too bad. If that is the registered office that is deemed to be good service. If the defendant can prove non-delivery, that is the writ is sent back and returned “address unknown” in the mail, then the defendant can have the judgment set aside.

Now I propose to apply that law here and it seems to me that the registered office of the four companies we are concerned about was Box 1170, Boroko and that the writs were served by post on that Box number. The plaintiff has given evidence of that. They were posted to that address. I have evidence of non-receipt from Mr Davis but no evidence which I accept of non-delivery, and, relying on those authorities, I consider that is good service.

Mr Davis claimed that he has not used Box 1170 since mid-1985. I propose to make some findings of fact on the ownership of Box No 1170. In this matter I have heard affidavit and oral evidence from various people including Mr Davis and from two Post Office officials. When I weigh up all the evidence I am satisfied on the balance of probabilities that Box 1170, opened by Mr Davis in 1968, was in Mr Davis’ name and was current, not closed, until 7 August this year. I base that on the fact that the card Ex D Private Box Record in Mr Davis’ name was in the current records at the Post Office. He referred to it as his personal box and I do not believe his story that in 1985 when the keys were taken off him he took no further interest in the box. I think the likelihood is that he would have done something to get some substitute keys and keep using his box. There was some vague evidence that this box could have been closed with sticky tape for three years but when I weigh up the evidence of the Post Office officials Mr Orio and Mr Benny, I think it is much more likely that it was in fact closed by putting in a pin about 7 August and finally closed on 7 September 1988. So I therefore find on the balance of probabilities that these writs which were posted in May were in fact received by Mr Davis. That may not be good service to post something to a director of a company, and the Collector of Taxes is not relying on service on Mr Davis. He is relying on service on the registered address, but if anything turns on findings of fact, they are my findings of fact. And the fact that Mr Kamane went along with Mr Davis, to rent the box on 10 October 1988, during the course of hearing this case, shows Mr Davis’ continuing interest in the box. Mr Davis and Mr Kamane have given an explanation as to how this came about, how this ex- employee was worried about not getting mail which had formerly been delivered to Box 1170. I find that explanation incredible. I think it quite likely that Mr Davis helped this man apply for the box for their mutual benefit in order that Mr Davis too might occasionally get some mail sent to that box. I think he organised that, he went there with him, he has one of the two keys, and that it was done for their mutual benefit.

I will now deal with more legal arguments. The fact that I found service to be regular does not conclude the matter. There are a number of legal arguments raised by Mr Karingu which could set aside these judgments. Mr Karingu argued that the 20 per cent interest is irregular and that interest can only be fixed by a judge; it cannot be fixed by the Registrar. He quoted an authority for that, Post and Telecommunication Corporation v Takoa Pastoral Company Pty Ltd [1985] PNGLR 44. That is a generally correct proposition of law: however, there are exceptions to that and one of the exceptions to it is where the interest is claimed under a contract such as a mortgage or under a statute. The interest in this case, which is called additional tax, is claimed under statute, under s 262 of the Income Tax Act. This argument fails.

His next point was that no warning was given to the defendants prior to the entry of judgment. He cited to me Practice Direction 1 of 1987 which says: “A default judgment can only be given after a warning has been given.” A careful look at that Practice Direction and the case on which it based, Mapmakers Pty Ltd v Broken Hill Proprietary Co Ltd [1987] PNGLR 78 shows that the warning is only necessary where a notice of intention to defend has been filed where a solicitor is on the record. As a matter of courtesy a plaintiff has to give the defendant or his lawyer a warning notice. It does not apply to the run-of-the-mill default judgments where no notice of intention to defend is filed. In those cases the defendant gets his warning in the writ only.

Fourthly he said that all sums are unliquidated — quoting me authority on that. I disagree. I consider these sums are clearly liquidated.

He next argued that the defendant companies have defences on the merits. Here I have a lot of sympathy for Mr Davis and his companies. It is highly likely that some of these assessments are wrong. Clearly one is wrong because it includes a couple of years when Davis Consolidated was not in operation and others may be wrong. I am afraid the law is very harsh. A section of the Income Tax Act makes it conclusive evidence. Section 239(1) says that:

That has been challenged in a number of cases in Australia. I will just quote two of them but there is a whole series of them. One is Re Noonan; Ex parte Deputy Commissioner of Taxation (NSW) (1964) 13 ATD 409 and another is Dorney v Federal Commissioner of Taxation (1980) 10 ATR 827 at 831. Those cases say that the section means just what it says; it is conclusive evidence. A taxpayer can only challenge it in the 60 day appeal period using the right procedures but cannot later challenge it by trying to set aside a default judgment. It is very tough law but in the past we have always followed the Australian taxation decisions, although we are not bound to, mainly because the Acts are the same and it gives predictability to the law. Also there are many more tax cases in Australia than here, thus a more developed jurisprudence to draw upon. This practice enables accountants and lawyers to advise their clients on tax matters with confidence. Maybe one day a National Court judge, or the Supreme Court, will create our own law, but at the moment I intend just to follow those Australian tax cases.[xviii]² And really what I am doing is giving effect to the plain meaning of the words in the section. It may be unfair, in fact in some cases it is unfair, but the section says the assessment is conclusive evidence and that is that. The only way out for Mr Davis and his companies is that, despite the fact that the assessment is conclusive evidence, and he has a judgment against him, the Collector, as a matter of discretion and grace rather than law, will in fact accept submissions from the tax payer right up to when the tax is paid. So if a submission is made to the Collector that in certain years a company was not operating or not making any profits, and that is accepted, the Collector will reduce his assessment or will only levy execution on a lesser sum. That is the only practical outlet that the company has. So I believe there is no defence on the merits because s 239(1) blankets out any such defence. I am therefore satisfied that those other four judgments were correctly entered and I dismiss the applications to set them aside.

[xviii] [Editor’s Note: Since delivering this judgment my attention has been drawn to a local case on s 239(1) of the Income Tax Act, viz Chief collector of Taxes v T A Field Pty Ltd [1975] PNGLR 144.]

Papua New Guinea Law Reports

Chief Collector of Taxes v Dickson Panel Works Pty Ltd and Davis Consolidated Pty Ltd [1988-89] PNGLR 186 (18 October 1988)

Papua New Guinea Law Reports - 1988-89