Ranchcove Pty Limited v Deputy Commissioner of Taxation [2004] ACTSC 17 (8 April 2004)

Last Updated: 2 February 2005

RANCHCOVE PTY LIMITED v DEPUTY COMMISSIONER OF TAXATION

[2004] ACTSC 17 (8 April 2004)

CORPORATIONS - statutory demand - application to set aside - affidavit in support - genuine dispute as to debt - other reason for setting aside

Corporations Act 2001, ss 459E, 459G, s 459H, s 459J

Taxation Administration Act 1953,s 14ZL

Embroidery Machinery Sales and Service Pty Limited v Deputy Commissioner of Taxation [2003] ACTSC 93

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 (Young J, Supreme Court of New South Wales, 6 March 1997, unreported)

Asia Pacific Glass v Sindea Trading Co [2003] NSWSC 334

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

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

K W and K M Quinn Investments Pty Limited v Deputy Commissioner of Taxation [2003] QSC 336

Nodnara Pty Limited v Deputy Commissioner of Taxation (1997) 140 FLR 336

Hoare Bros v Deputy Commissioner of Taxation (1996) 62 FCR 302

No SC 126 of 2004

Coram: Master Harper

Supreme Court of the ACT

Date: 8 April 2004

IN THE SUPREME COURT OF THE )

) No SC 126 of 2004

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: RANCHCOVE PTY LIMITED

Plaintiff

AND: DEPUTY COMMISSIONER OF TAXATION

Defendant

ORDER

Coram: Master Harper

Date: 8 April 2004

Place: Canberra

THE COURT ORDERS THAT:

1. The application be dismissed.

2. The defendant have liberty to apply on 7 days' notice in relation to costs.

1. This is an application by one of two associated companies under s 459G of the Corporations Act 2001 to set aside a statutory demand. The demand was dated 4 February 2004, and required payment of an asserted debt of $26,209.94. The demand was served on the company at its registered office, the premises of a firm of accountants at Fyshwick. It was a accompanied by an affidavit verifying that the debt was due and payable, and expressing the belief of the deponent that there was no genuine dispute about the existence or the amount of the debt, as required by s 459E.

2. Application was made on behalf of the company on 26 February for an order that the demand be set aside. The application is supported by an affidavit affirmed by Mr A C Powrie, the company's solicitor. He deposes that he received instructions to act for the company on 28 November 2003. Mr Powrie is a registered tax agent as well as a solicitor. He says in his affidavit that he is instructed by the directors of the company, and that he verily believes, that there is a genuine dispute about any debt owed to the defendant. He says that the `veracity' of the debt has been formally challenged and was at the date of the affidavit subject to review by the defendant. He says that other than the defendant, the company has no major creditors. He deposes that the company has a small range of trade creditors and was at the date of the affidavit trading and able to pay its debts as they fell due.

3. Mr Powrie annexed to his affidavit copies of four letters sent by his firm to the defendant, dated 10 December 2003 and 7, 9 and 20 February 2004. He did not annex a copy of the statutory demand or any correspondence from the defendant. In applications of this kind it is essential that a copy of the statutory demand and its supporting affidavit be before the court, and the whole course of correspondence between the solicitors and the defendant should have been annexed. It is inappropriate and capable of misleading the court for the deponent to an affidavit supporting an application to set aside a statutory demand to annex correspondence thought to be helpful to the client's case but to omit other correspondence. The company comes before the court seeking the exercise of a discretion, and it may count against the company if it is seen to be selective as to the material put before the court. In the present case the defendant's counsel was fortunately in a position to hand up copies of other relevant documents.

4. The recent history emerges from the correspondence. On 9 December 2003, Mr Powrie had a telephone conversation with Ms Walsh of the Hurstville office of the defendant, and wrote to her on the following day. He informed her that he had "formed the view that there [was] a significant amount of the current debt that [was] not owed to the ATO". He said that he was instructed to prepare and lodge objections to "these assessments" within 14 days. He went on to say that there was "also a second amount of the current debt that is subject to a genuine dispute, on the basis that a court would not necessarily deem certain amounts included in the current debt to be income". He also asserted "that various deductions which would have had the effect of reducing assessable income for the respective taxpayers may not have been claimed."

5. In the same letter, perhaps somewhat inconsistently, Mr Powrie said that he had been instructed that the companies and the directors were "committed to acquitting their outstanding tax liabilities as a matter of priority." They had instructed him that they were prepared to sell property to acquit the tax debts, and might be amenable to providing an irrevocable transfer of the sale proceeds to acquit some of the tax debt. He noted that a number of the properties his clients had listed for sale were held on trust and would be beyond the reach of the ATO at law. He requested that the ATO "cease all recovery proceedings until the relevant objections have been determined in accordance with law" and asked that the defendant forgo any penalties and interest claimed. There is no evidence as to any communications between the defendant and the company prior to Mr Powrie's letter of 10 December: I infer from the terms of the letter that the defendant had threatened legal proceedings if the outstanding tax was not paid promptly.

6. Mr Powrie prepared a document headed "formal request for review and notices of objection against assessment and amended assessment for the financial years ended 30 June 1999 to 30 June 2004." The document is dated 7 February 2004. Mr Powrie annexed to his affidavit a copy of a letter dated 7 February 2004 but bearing the endorsement "delivered by hand to 2 Constitution Avenue Canberra on 09 February 2004". The letter described the objections as attached. (The objection document was not annexed to the affidavit.) In the letter, Mr Powrie made a formal request that the objections be treated as if they had been lodged within time. He referred to a need to "obtain further and better particulars about the audit which had been undertaken by the ATO and the subsequent assessments" as a major reason for the delay in lodging the objection.

7. No copies of any assessments or amended assessments are in evidence. The objection document is in general terms and does not refer to any particular assessment or amount. Mr Powrie in address was unable to direct my attention to any specific portion of the seventeen-paragraph document which contained any concrete objection on any intelligible basis to any specific assessment. I have scrutinised the document carefully and am not satisfied that it raises any issue in sufficiently particular terms to enable an officer of the defendant to whom the matter might be assigned for review, to understand the basis of the objection, or to identify the amount in dispute.

8. There is no evidence as to when the company received the statutory demand. Mr Powrie asserted from the bar table, though not in his affidavit, that he, and the company, did not become aware that the demand had been served until after the lodgement of the objection on 9 February; and certainly he did not mention anything about the statutory demand in his letters of that date.

9. On 10 February, Ms Walsh replied to Mr Powrie's fax of the previous day, informing him that legal action would be deferred only if the taxpayers, including the company, paid all undisputed amounts immediately and half of the disputed amounts within 14 days. Perhaps somewhat oddly Ms Walsh, who had herself sworn the affidavit supporting the statutory demand, did not mention in the letter that the demand had already been served, but rather referred to the issuing of a demand as something which might happen in the future if the taxpayers did not agree to the conditions as to part payment.

10. On 8 March 2004, Ms Tam of the defendant's Parramatta office wrote to Mr Powrie, referring to the notice of objection. She pointed out that the grounds of objection were required to be stated fully and in detail; that is, in sufficiently precise terms to direct the Commissioner to the aspect of the assessment considered to be incorrect. The objection was also required to give reasons for considering the assessment to be incorrect. Ms Tam expressed the view that the notice did not contain a sufficiently explicit statement to direct the Commissioner to a conclusion that the assessment was excessive, or reasons to support such a conclusion. The letter gave Mr Powrie 28 days to provide that information, and informed him that in the absence of a reply, the objection would be determined "on the facts available". There is no evidence that Mr Powrie has provided the defendant with any further information in reply to Ms Tam's letter.

11. The objection document acknowledged that some of the amounts claimed by the defendant from the company were not susceptible of objection. It was submitted by counsel for the defendant that the only amount included in the statutory demand to which the company had any statutory right to object was $474.40. In respect of the balance of the amount claimed, the objection document "seeks a formal review of the actions, decisions and processes of the Australian Taxation Office which have resulted in a liability, however so described, of the taxpayer during the relevant period". Counsel for the defendant submits that there is no right to object other than pursuant to s 14ZL of the Taxation Administration Act 1953. Any objection to an assessment must be made in conformity with a right to object conferred by the Act.

12. Mr Powrie, representing the company, submits that a right to seek such a review, in circumstances where the objection procedure is unavailable, can be implied from the general powers conferred on the defendant to administer the system of tax assessment and collection. He is unable to direct me to any authority for this proposition.

13. I dealt at some length with the principles governing the setting aside of a statutory demand in Embroidery Machinery Sales and Service Pty Limited v Deputy Commissioner of Taxation [2003] ACTSC 93, in which, by coincidence, the same solicitors and counsel and the same defendant were involved. I there referred to a number of cases which are authority for the proposition that the affidavit supporting an application to set aside a statutory demand on the ground of a genuine dispute must disclose facts which establish that there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is not enough, and in particular, a solicitor's assertion that the claim is disputed is insufficient: 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 (Young J, Supreme Court of New South Wales, 6 March 1997, unreported). In Asia Pacific Glass v Sindea Trading Co [2003] NSWSC 334, Barrett J said:

. . . in order to make a finding of genuine dispute within s 459H(1)(a), the court needs more than an assertion in the plaintiff's affidavit that there is a dispute. It needs to see evidence properly adduced on the application showing facts about past events sufficient to indicate differences between the parties that can properly be characterised as a dispute as to the relevant matter: also that that dispute is of sufficient cogency to pass the "genuine" test . . .

14. Mr Powrie's affidavit of 24 February 2004 is in my view of incapable of satisfying a court that there is a genuine dispute between the company and the defendant about the existence or amount of the debt. The affidavit amounts to little more than an assertion by Mr Powrie as the company's solicitor and "taxation adviser" that the debt is disputed. Mr Powrie was first instructed to act for the company less than three months before affirming his affidavit and does not assert that his belief is grounded on personal knowledge, or that there is any basis for it other than the instructions he has received from the directors. Although there is authority for the proposition that the application must stand or fall on the supporting affidavit sworn within the 21-day period after service of the statutory demand, which may not be supplemented by later affidavit material, in this case I have had regard to material not included in that affidavit: the statutory demand and supporting affidavit, the objection document and two letters from the defendant to Mr Powrie's firm. There is nothing further in any of those documents which could, in my opinion, taken in conjunction with Mr Powrie's affidavit, satisfy a court that there is a genuine dispute between the company and the respondent about the existence or amount of the debt.

15. The company relies not only on s 459H (genuine dispute as to the debt) but also on s 459J(1)(b) (some other reason why the demand should be set aside). Mr Powrie earlier in the course of the hearing sought to rely on s 459J(1)(a) (defect in the demand) but subsequently abandoned this ground; correctly in my view, no defect in the statutory demand itself having being identified.

16. I referred in Embroidery Machinery Sales to three decisions in which statutory demands had been set aside for "some other reason" under s 459J(1)(b): Kanwa Nominees Pty Limited v Australian Taxation Office [2001] ACTSC 113; Willemse Family Company v Deputy Commissioner of Taxation [2002] QSC 292; [2003] 2 Qd R 334; K W and K M Quinn Investments Pty Limited v Deputy Commissioner of Taxation [2003] QSC 336. In the first two cases, the tax assessments were under parallel challenge in Federal Court proceedings; in the third, the defendant was engaged in a test case with another taxpayer involving the same facts as had given rise to the applicant's tax liability. The present case is not in either of those categories. The evidence discloses no basis for a challenge to any assessments giving rise to the debt, and no error by the respondent has been demonstrated.

17. The matters which can be taken into account by a court in dealing with an application under s 459J(1)(b) are potentially very broad, as was explained by Young J in Nodnara Pty Limited v Deputy Commissioner of Taxation (1997) 140 FLR 336, referring to Hoare Bros v Deputy Commissioner of Taxation (1996) 62 FCR 302. Some matters which might be relevant are whether the Commissioner has acted conscionably, and whether injustice would be caused by not setting aside the notice. In the present matter, there is no evidence of any basis for the exercise of the discretion under s 459J(1)(b). The company has been unable to point to any unfairness in the manner in which it has been treated by the defendant. The company appears to accept that it has some tax liability to the defendant, but has made no attempt to quantify this, still less to pay it. Although Mr Powrie deposed in his affidavit of 24 February 2004 that the company was currently trading and able to pay its debts as and when they fell due (presumably on belief grounded on information provided by the directors), he informed me on the hearing of the application that the company was no longer trading and had no assets, so that it would be unable to satisfy any tax liability, and would have to rely on funds being made available by the directors from other sources if it were to do so. I infer from this information that, having some liability to the defendant and no funds from which to satisfy it, the company is insolvent: a further reason why it would be inappropriate to exercise any available discretion under s 459J in the company's favour.

18. The application will accordingly be dismissed. My provisional view is that, the application having being made by a company without assets, on instructions provided by its directors, Zvonko (Bill) Novak and Sophie Novak, it may be appropriate that the defendant's costs of the application be recoverable from the directors. This is not an order which I would be prepared to make without providing the directors with an opportunity to be heard. That opportunity will be provided if the defendant wishes to seek such an order.

I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Decision herein of Master Harper.

Associate:

Date: 8 April 2004

Counsel for the plaintiff Mr A C Powrie

Solicitor for the plaintiff Powrie and Co

Counsel for the respondent Mr R Vivekenanda

Solicitor for the defendant Australian Government Solicitor

Date of hearing 2 April 2004

Date of decision 8 April 2004