Embroidery Machinery Sales & Server Pty Limited v Deputy Commissioner of Taxation [2003] ACTSC 93 (14 November 2003)

Last Updated: 24 November 2003

EMBROIDERY MACHINERY SALES & SERVICE PTY LIMITED v DEPUTY COMMISSIONER OF TAXATION

[2003] ACTSC 93 (14 November 2003)

CORPORATIONS - statutory demand - application to set aside - affidavit in support

Corporations Act 2001, s 459G

Financial Management and Accountability Act 1997, s 34

David Grant and Co Pty Limited v Westpac Banking Corporation [1995] HCA 43; [1995] 184 CLR 265

Graywinter Properties Pty Limited v Gas and Fuel Corporation Superannuation Fund [1996] 822 FCA 1

John Holland Construction and Engineering Pty Limited v Kilpatrick Green Pty Limited [1994] 14 ACSR 250

Dromore Fresh Produce Pty Limited v W Paton (Fertilizers) Pty Limited (6 March 1997, Young J, Supreme Court of NSW, unreported).

D and S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1,794

Re: Brentwood Terrace (Lee J, Supreme Court of Queensland, unreported, 28 November 1997)

Kanwa Nominees Pty Limited v Australian Taxation Office [2001] ACTSC 113

Willemse Family Company Pty Ltd v Deputy Commissioner of Taxation [2002] QSC 292; [2003] 2 Qd.R 334

KW and KM Quinn Investments Pty Ltd v Deputy Commissioner of Taxation [2003] QSC 336

No SC 666 of 2003

Coram: Master Harper

Supreme Court of the ACT

Date: 14 November 2003

IN THE SUPREME COURT OF THE )

) No SC 666 of 2003

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: EMBROIDERY MACHINERY SALES & SERVICE PTY LIMITED

Applicant

AND: DEPUTY COMMISSIONER OF TAXATION

Respondent

ORDER

Coram: Master Harper

Date: 14 November 2003

Place: Canberra

THE COURT ORDERS THAT:

1. The application be dismissed.

1. This is an application by one of four associated companies under s 459G of the Corporations Act 2001 to set aside a statutory demand. The demand was dated 17 September and apparently received by the applicant a day or two later. The amount of the debt asserted to be owing was $129,864.21. The demand was accompanied by an affidavit verifying that the debt was due and payable, as required by s 459E.

2. On 25 September, the applicant gave instructions to Mr A C Powrie, solicitor, of Powrie and Co. On the following day, Mr Powrie made contact with Mr L Dickinson of the Parramatta office of the Australian Taxation Office. Mr Powrie told Mr Dickinson that the appellant company had made application to the Minister for Finance for waiver of the tax debt. Mr Powrie asked Mr Dickinson to withdraw the statutory demand and not to take any further action until a decision had been made as to waiver. Mr Dickinson said that this was agreed, subject to a moratorium for one month. Mr Powrie informed him that he would need to "advise the Court" that the demand had been withdrawn. Mr Dickinson confirmed by email on the same afternoon that an Assistant Commissioner had agreed to the request that the statutory demand be withdrawn and that there would be a 28-day moratorium on any further action, conditionally upon the company meeting its continuing tax obligations during that time. The moratorium was to expire on Friday 24 October 2003. The email stated that full written confirmation of the advice would follow. There was no written confirmation.

3. Pursuant to s 459G a company may apply to the court for an order setting aside a statutory demand. The application may only be made within 21-days after service of the demand. An affidavit supporting the application must be filed with the court within that 21-day period, and copies of the application and affidavit served on the creditor. Conscious that the 21-day period had almost run out, on 7 October Mr Powrie filed and served an application to this Court seeking an order that the demand be set aside. On the same date he affirmed and filed an affidavit in support of the application. He deposed that he was the company's solicitor and taxation adviser, that he verily believed that there was a genuine dispute about any debt owed to the defendant, and that the matter was currently subject to government review. He also deposed to his belief that the company had no other major creditors: there was a small range of trade creditors but the company was able to pay its debts as they fell due. The application was set down by the Court for hearing on 17 October.

4. On 14 October, Mr Powrie telephoned Mr Dickinson. Mr Dickinson asked why he had started legal proceedings, after having been assured that a moratorium was in place and that the statutory demand had been withdrawn and suspended. Mr Powrie said that he had received no confirmation that this had happened. He repeated his opinion that a statutory demand was a court process, and that its withdrawal required some form of court imprimatur. For that reason, he had taken the view that it was necessary to file and serve the application to set aside the notice, in order to protect the company's position. He told Mr Dickinson that he wanted the demand to be withdrawn until a ministerial decision had been made on the waiver application.

5. By 16 October, Mr Powrie had not been served with an appearance, and had received no communication from the Australian Government Solicitor's Office, which he expected would be instructed to represent the respondent. He telephoned Mr Dickinson again. He told him that the application was before the court the following day. He asked Mr Dickinson to agree to consent orders withdrawing the demand, which he offered to draft. Mr Dickinson replied that he could not see any problem with that, but was in new territory. Mr Powrie gave him the telephone number of a solicitor with the Australian Government Solicitor's Canberra office. There was also some discussion about a meeting proposed for 21 October.

6. Later the same day, Mr Dickinson telephoned again. He said "we will withdraw the statutory demands... as agreed". Mr Powrie told him that the company would be seeking the costs of the application. There was further discussion about the proposed meeting on 21 October. Despite some further correspondence between Mr Powrie and Mr Dickinson by email and letter, no meeting took place.

7. On the return date of the application, 17 October, Mr Powrie attended the Court. There was no appearance for the respondent. Mr Powrie sought an adjournment to 31 October, which was granted. By 31 October, the Australian Government Solicitor had been instructed and Mr Powrie informed that the application to set aside the demand would be opposed.

8. The ministerial power to waive a debt to the Commonwealth is found in s 34 of the Financial Management and Accountability Act 1997. The section provides that the Finance Minister may waive the Commonwealth's right to payment of an amount owing to the Commonwealth. It is common ground that the section applies to a taxation debt, and that the discretion may be exercised by the Parliamentary Secretary to the Minister. Section 34 requires a proposed waiver involving more than $100,000 to be referred to an advisory committee set up under s 59 of the Act, which comprises the Chief Executive Officer of Customs, the Secretary to the Department of Finance and the Chief Executive of the agency responsible for the matter: here, the Commissioner of Taxation. The Act confers no right of review in respect of a decision under s 34.

9. Mr Powrie has deposed, in an affidavit dated 6 November, that the company made representations seeking a waiver of the debt on 15 and 18 August. No copy of the representations or any supporting material is in evidence.

10. On 16 October 2003, the Parliamentary Secretary to the Minister wrote to an accountant who had made the request on behalf of the company. The debts sought to be waived amounted to approximately $2.3m in respect of the four companies. I set out relevant extracts from the Parliamentary Secretary's letter:

As the Parliamentary Secretary to... [the] Minister for Finance and Administration, I have responsibility for determining all requests for waiver of debts under the FMA Act.

At this stage I have not reached a firm conclusion with respect to your request, but should say at the outset that requests for waiver are generally only approved in special circumstances, where the decision maker determines that the Australian Government's acts or omissions or effects, of its legislation have directly caused or contributed to a claimant's overall loss, or it is considered that the financial circumstances of any individual will not improve to the point where he or she could not [sic] repay the debt without suffering genuine and significant personal financial hardship.

With respect to the losses sustained by the companies, although regrettable, I note that the Australian Government had no role in precipitating or sustaining the companies' difficulties. Furthermore, I note that the companies have separate legal identities from their shareholders and that, on this basis, it could be argued that payment of the companies' outstanding liabilities would not impose severe ongoing hardship on any of the individuals concerned.

At issue in this instance is whether the Australian Government has a moral obligation to provide waiver of debt to the companies. To assist me in consideration of this issue, I am seeking your views on why you believe the Australian Government could be said to have a moral obligation to approve your request to waive the companies' outstanding taxation liabilities.

Without wishing to limit the range of matters you might like to identify in support of your request, it would be appreciated if you could comment on two particular considerations which, in my mind, raise doubts about the existence of a moral obligation in this case.

The first of these relates to the factors you have cited as being responsible for the companies' inability to pay their outstanding taxation liabilities... From my perspective, these factors could be said to support the view that the companies' inability to maintain their taxation obligations resulted from actions that were totally outside the control of the Australian Government.

The second consideration is that... other Australian businesses... remain subject to their taxation obligations... This could lead to the conclusion that waiver... would have an inequitable effect on other companies who face similar problems.

There views I have formed are preliminary. Therefore, before I exercise my discretion pursuant to subsection 34(1) of the FMA Act in this case, I will wait until you have had the opportunity to submit any further matter that, in your opinion, would be pertinent.

Please be assured that I will carefully consider all the material involved before I reach a decision and that I will advise you directly of the outcome.

11. Mr Powrie in a letter of 22 October to the respondent, sought to characterise the letter from the Parliamentary Secretary as an indication that he required further information before he could make a decision as to waiver. Mr Powrie made reference to the expansive nature of the Parliamentary Secretary's request and the large amount of information that the companies would need to collate to properly address the issues raised by the Parliamentary Secretary. I do not read the letter in the same way. The Parliamentary Secretary has not sought any further specific information at all. He has simply provided the companies with a final opportunity to put any further material forward, with knowledge of the criteria he is minded to apply in dealing with a request that the company be relieved of its obligation at law to pay its assessed tax.

12. Notwithstanding Mr Powrie's assertion in his affidavit of 7 October of his belief "that there is a genuine dispute about any debt owed to the defendant", no evidence has been put forward by the company as to the basis of or grounds for any such dispute. Evidence was adduced by the respondent without objection from an authorised officer as to how the debt is calculated. That evidence was unchallenged.

13. I explored during argument with counsel for the company whether it might be an option to adjourn the application for a time likely to be adequate for the company to put any further material before the Parliamentary Secretary, and for the Parliamentary Secretary to make a decision on the request for waiver. Counsel, on instructions, specifically declined to pursue this suggestion, and asked me to deal with the application on the evidence before the Court. I proceed to do so.

14. The primary submission of counsel for the respondent was that Mr Powrie's affidavit of 7 October did not meet the requirements for an affidavit supporting the application as required by subsection 459G(3). Counsel relied upon the decision of the High Court in David Grant and Co Pty Limited v Westpac Banking Corporation [1995] HCA 43; [1995] 184 CLR 265. In the principal judgment, Gummow J referred to the explanatory memorandum published at the time that the bill for the Corporations Law was introduced into the Parliament, and endorsed the statement therein that for an application to set aside a statutory demand to be effective, the 21-day time limit for the filing and service of the application and supporting affidavit must be complied with. As his Honour said at page 270:

The provisions of the new part 5.4 constitute a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised promptly.

15. It follows from David Grant that a purported application to set aside a statutory demand which is not supported by an affidavit filed and served within 21 days is ineffective: that is to say, it is no application at all.

16. In this case, there was an affidavit filed and served within the 21-day period. It purported to be an affidavit supporting the application. Counsel for the respondent submits that Mr Powrie's affidavit of 7 October does not fit that description. He relied upon Graywinter Properties Pty Limited v Gas and Fuel Corporation Superannuation Fund [1996] 822 FCA 1 where Sundberg J held that for the purposes of subsection 459H(1), the supporting affidavit must disclose facts showing that there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough. Nor is a bare claim that the debt is disputed sufficient.

17. This view was followed by Young J, in the Supreme Court of New South Wales, in John Holland Construction and Engineering Pty Limited v Kilpatrick Green Pty Limited [1994] 14 ACSR 250 and also in Dromore Fresh Produce Pty Limited v W Paton (Fertilizers) Pty Limited (6 March 1997, unreported). His Honour said that there must be something more than mere assertion. A solicitor's assertion that the plaintiff's claim is disputed is insufficient.

18. It seems to me that Mr Powrie's affidavit of 7 October 2003 is not capable of satisfying a court, for the purposes of subsection 459H(1), that there is a genuine dispute between the company and the respondent about the existence or amount of the debt to which the demand relates. The affidavit amounts to no more than a mere assertion by a solicitor that the debt is disputed. Mr Powrie was instructed in the matter less than three weeks earlier and does not assert that he has any personal knowledge grounding his belief. It must follow that the affidavit is inadequate to meet the requirements for an affidavit supporting the application within subsection 459G(3).

19. Mr Powrie swore a second affidavit on 6 November 2003, outside the 21-day period. Counsel for the company conceded that an application which is ineffective for non-compliance with subsection 459G(3) cannot be converted into an effective application by a subsequent affidavit filed outside the period. This is consistent with the decision of Perry J in the Supreme Court of South Australia, D and S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1,794, where his Honour held that an affidavit filed outside the 21-day period, insofar as it raised any ground offered in support of the application not identified in the original supporting affidavit, could not be taken into account in determining the application. A similar conclusion was reached by Lee J in Re: Brentwood Terrace (Supreme Court of Queensland, unreported, 28 November 1997).

20. In any event, there is nothing more in Mr Powrie's second affidavit which could, in my opinion, satisfy a court that there is a genuine dispute between the company and the respondent about the existence or amount of the debt.

21. It follows from this conclusion that the application before the Court is not an application complying with s 459G and therefore that the Court has no power under s 459J to set it aside.

22. If I am incorrect about the status of Mr Powrie's first affidavit, I should go on to say that even if I had jurisdiction, I would not be satisfied that any reason had been established for the demand to be set aside. Counsel for the company does not seek to rely on s 459H (genuine dispute as to the debt) but relies solely on s 459J. I have been referred to three decisions in which a statutory demand was set aside under s 459J. In Kanwa Nominess Pty Limited v Australian Taxation Office [2001] ACTSC 113, Master Connolly, as his Honour then was, exercised his discretion to set aside a statutory demand in circumstances where parallel litigation was proceeding in the Federal Court of Australia dealing with the same issues.

23. Similarly, Holmes J set aside a statutory demand in Willemse Family Company Pty Ltd v Deputy Commissioner of Taxation [2002] QSC 292; [2003] 2 Qd.R 334 where there was an appeal against the rejection of an objection to an assessment before the Federal Court. The third decision was KW and KM Quinn Investments Pty Ltd v Deputy Commissioner of Taxation [2003] QSC 336, where McMurdo J set aside a statutory demand on evidence by the company's solicitor that he had instructions to proceed with applications to the Administrative Appeals Tribunal in respect of the assessment giving rise to the debt. The last decision is the only one to which I have been referred where there were no current proceedings at the time of the application to set the demand aside. Nevertheless, even in that case, there was evidence that the company had an arguable basis for a challenge to the assessments on which the debt was based. That is not the case here. The evidence discloses no basis for any challenge to the assessments, and no error by the respondent has been demonstrated or even asserted. All that the company can rely upon is a request to the Parliamentary Secretary to the Minister for Finance under s 34 of the Financial Management and Accountability Act 1997. In relation to that request, the Parliamentary Secretary has conveyed the preliminary view that the company has not demonstrated a moral obligation on the part of the Commonwealth to waive the debt, or other special circumstances of the kind adverted to in the Parliamentary Secretary's letter.

24. The Court's power under s 459J is discretionary. Relevant factors to be taken into account in exercising the discretion would have included a concern that the company may be continuing to trade whilst insolvent. There has been no offer to pay the disputed debt into Court, or to provide the respondent with security for it by bank guarantee or otherwise. I infer that if the respondent's debt is included, the company is unable to pay its debts as they fall due. Its continued trading in these circumstances may ultimately cause losses to creditors in respect of debts incurred after service of the statutory demand.

25. It follows that even if I had jurisdiction under s 459J to set the demand aside, I would not be satisfied that there was any adequate reason to do so.

26. The application will accordingly be dismissed. My provisional view is that costs should follow the event but I shall provide the parties with an opportunity to make submissions as to costs should they wish to do so, before making any order.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Decision herein of Master Harper.

Associate:

Date: 14 November 2003

Counsel for the plaintiff Mr J Pappas

Solicitor for the plaintiff Powrie and Co

Counsel for the defendant Mr R Vivekananda

Solicitor for the defendant Australian Government Solicitor

Date of hearing 7 November 2003

Date of decision 14 November 2003