Mossimo Systems International Pty Ltd v Deputy Commissioner of Taxation [2010] NSWSC 1409 (2 December 2010)

NEW SOUTH WALES SUPREME COURT

CITATION:
Mossimo Systems International Pty Ltd v Deputy Commissioner of Taxation [2010] NSWSC 1409

JURISDICTION:
Equity Division
Corporations List

FILE NUMBER(S):
2010/109215

HEARING DATE(S):
02/12/10

JUDGMENT DATE:
2 December 2010

EX TEMPORE DATE:
2 December 2010

PARTIES:
Mossimo Systems International Pty Ltd
Horizon Developments Sydney Pty Ltd
Precise Constructions Pty Ltd
Integrated Constructions Pty Ltd
Caporale Buiilders Corporation Sydney Pty Ltd
Elite Project Management Pty Ltd
Caporale Group Pty Ltd
Matrix Holdings Pty Ltd
Caporale Builders Pty Ltd - Plaintiffs
Deputy Commissioner of Taxation - Defendant

JUDGMENT OF:
Barrett J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable

COUNSEL:
Ms Rosa Caporale - authorised officer of plaintiffs
Mr D M Jay - Defendant

SOLICITORS:
Rosa Caporale in person
Legal Services Branch, Australian Taxation Office - Defendant

CATCHWORDS:
CORPORATIONS - winding up - statutory demand - application for order setting aside - nine plaintiffs file one originating process in respect of separate statutory demands for their separate tax debts - two plaintiffs deregistered after filing and before hearing - their purported claims not addressed - application by the remaining seven not in conformity with s 459G because all plaintiffs seek setting aside of all statutory demands - defendant while taking this point nevertheless content to argue the merits - debts for goods and services tax and penalties under Commonwealth taxation legislation - whether open to taxpayer to argue in the face of conclusivity provisions of taxation legislation that there is a genuine dispute regarding tax debt or to assert offsetting claim based on the proposition that a successful objection will show tax refund to be owing - whether pendency of objection against assessment and consequent inability to resort to review and appeal processes are "some other reason" to set aside statutory demand

LEGISLATION CITED:
Corporations Act 2001 (Cth), ss 459E, 459G, 459H(1)(a), 459H(1)(b), 459J(1)(b), 601AB
Taxation Administration Act 1953 (Cth), Schedule 1: sub-ss 105-5(1), 298-30

CATEGORY:
Principal judgment

CASES CITED:
Amcus Pty Ltd v Hurst Rentals Pty Ltd (No 2) [2010] NSWSC 239; (2010) 77 ACSR 550
Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corp Ltd [2008] HCA 9; (2008) 232 CLR 314
David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265
Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473
Golden Plantation Pty Ltd v TQM Design and Construct Pty Ltd [2010] NSWSC 1279
Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452
Neutral Bay Pty Ltd v Deputy Commissioner of Taxation [2007] QCA 312; (2007) 25 ACLC 1341
United Service Insurance Co Ltd v Lang (1935) 35 SR(NSW) 487
Zolsan Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 1326; [2007] NSWSC 1326; (2007) 215 FLR 143.

TEXTS CITED:

DECISION:
Applications of seven plaintiffs dismissed with costs. Applications of two purported plaintiffs not addressed in light of their dissolution.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

THURSDAY 2 DECEMBER 2010

2010/109215 MOSSIMO SYSTEMS INTERNATIONAL PTY LIMITED & ORS v DEPUTY COMMISSIONER OF TAXATION

JUDGMENT

1 I am dealing with an originating process filed on 3 May 2010. Nine companies are named as plaintiffs. They are Mossimo Systems International Pty Ltd, Horizon Developments Sydney Pty Ltd, Precise Constructions Pty Ltd, Integrated Constructions Pty Ltd, Caporale Builders Corporation Sydney Pty Ltd, Elite Project Management Pty Ltd, Caporale Group Pty Ltd, Matrix Holdings Pty Ltd and Caporale Builders Pty Ltd.

2 There is one defendant, Deputy Commissioner of Taxation. It will be convenient to refer to the defendant as the “ATO”.

3 The originating process is signed for each company by its "authorised signatory", Ms Caporale. That is, in terms of the rules of court, irregular; but no objection was taken by the ATO.

4 Ms Caporale has also appeared today on the hearing of the originating process. This too is irregular but the ATO did not object to her speaking for the plaintiffs.

5 The claim advanced by the originating process is a claim for an order setting aside statutory demands served by the ATO on the nine companies under s 459E of the Corporations Act 2001 (Cth).

6 Two preliminary matters must be addressed. The first is the fact that two of the plaintiff companies no longer exist. As is shown by ASIC search materials tendered by the ATO, Matrix Holdings Pty Ltd was deregistered by ASIC on 3 October 2010 and Caporale Builders Pty Ltd was deregistered by ASIC on 23 June 2010. The search records show that the deregistration occurred in each case under s 601AB which is concerned with ASIC-initiated deregistration. The consequence is that each of those two companies existed when the originating process was filed on 3 May 2010, but ceased to exist before the hearing.

7 On this, Mr Jay of counsel, who appeared for the ATO, took me to the recent decision of Slattery J in Amcus Pty Ltd v Hurst Rentals Pty Ltd (No 2) [2010] NSWSC 239; (2010) 77 ACSR 550 in which his Honour followed in similar circumstances the course indicated by Sir Frederick Jordan in United Service Insurance Co Ltd v Lang (1935) 35 SR(NSW) 487: when the court finds that a plaintiff is not before it because dissolved and non-existent, the court must "do nothing except refrain from proceeding any further".

8 I accordingly approach the originating process as if the claim in it were advanced by the remaining seven plaintiffs only.

9 That leaves the second preliminary matter. If the two dissolved plaintiffs are ignored, the proceeding is one in which seven plaintiffs, each of which has been served with a statutory demand in respect of a separate debt owed to a single creditor, together make an application for an order setting aside all the statutory demands. Such an approach does not accord with s 459G of the Corporations Act.

10 I would simply repeat here what I said recently in Golden Plantation Pty Ltd v TQM Design and Construct Pty Ltd [2010] NSWSC 1279 at paragraphs [13] to [18]:

11 This case is precisely the same. The originating process does not advance any claim in the manner contemplated and allowed by s 459G. That of itself is sufficient reason, without more, for dismissal of the originating process in respect of the seven remaining plaintiffs.

12 The ATO, however, while formally taking this point, was content to deal with the substance of the case put on behalf of the seven remaining plaintiffs by Ms Caporale. I therefore proceed to the merits of that case.

13 The circumstances pertaining to each of the seven companies are relevantly the same. I therefore address the matter by reference to Precise Constructions Pty Ltd on the footing that the result in relation to that company will apply to the other six cases as well.

14 The statutory demand served by the ATO on Precise Constructions is dated 9 April 2010. It relates to a debt of $392,402.21 described in the schedule to the statutory demand as follows:

“a)

Running Balance Account deficit debt as at 9 April 2010 in respect of amounts due under the BAS provisions as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (the ITAA 1997’) [BAS provisions include, generally: the goods and services tax provisions, the PAYG withholding provisions, the PAYG instalment provisions, the fringe benefits tax instalment provisions and the deferred company instalment provisions], administrative overpayments due under section 8AAZN of the Taxation Administration Act 1953 (‘the TAA 1953’), administrative penalties due under Part 4-25 of Schedule 1 of the TAA 1953 and the general interest charge payable under section 8AAZF of the TAA 1953, being a debt due and payable by the company pursuant to section 8AAZH of the TAA 1953”

15 Precise Constructions' contention that the statutory demand served on it should be set aside is based on both s 459H(1)(a) and s 459H(1)(b). As to the former, it is said that there is a genuine dispute as to the existence or amount of the debt of $392,402.21. As to the latter, the contention is that the company has an offsetting claim against the ATO.

16 There was also reference in submissions to s 459J(1)(b) but, as Mr Jay pointed out, that ground does not appear to be raised by the affidavit filed with the originating process. I shall come back to this.

17 As the description of the debt in the statutory demand makes clear, the debt is a tax debt created and arising under taxation legislation. I was taken to a notice of assessment of net amount dated 3 March 2009 under sub-s 105-5(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) and a notice of assessment and liability to pay penalty tax of the same date under sub-s 298-30 in Schedule 1, as well as a running balance account statement for the period 1 July 2000 to 26 July 2010. The last mentioned document, which incorporates amounts from the two notices of assessment, shows, as at a date shortly before the date of the statutory demand, a balance of $392,402.21 which corresponds with the amount in the statutory demand.

18 This, as I have said, is the position in relation to Precise Constructions. The position is the same, although of course as to different amounts, for the other six companies.

19 Ms Caporale puts forward, in each case, the same basis for the proposition that there is a genuine dispute as to the existence or amount of the debt the subject of the statutory demand. She points out that notices of objection have been lodged in respect of the several assessments and that the objections are as yet undetermined. She also referred in broad terms to the bases of objection, including on the question whether the companies are in reality conducting enterprises. Each, I might say, is said to be associated with the development or proposed development of a privately owned and managed education and training centre known as the Illawarra Employment and Teaching Centre.

20 Ms Caporale canvassed numerous matters of debate and contention between the companies and the ATO. She maintains that the several assessments will in due course be set aside and that the final position will be one in which there is no tax debt of any of the companies and, furthermore, the ATO will owe money to the companies themselves. It is this that forms the basis of the genuine dispute and offsetting claim parts of the case.

21 Ms Caporale's basic submission is that it is unjust for the ATO to have the benefit flowing from the statutory demands when the objections have not been determined and any processes of review and appeal have not yet become available. It is this perceived injustice that is relied on in relation to s 459J(1)(b) ground to the extent that it may be available. Ms Caporale referred, in that connection, to the decision of Young CJ in Eq in Zolsan Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 1326; (2007) 215 FLR 143.

22 Mr Jay submitted that the decision of the High Court in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 is a complete answer to all branches of the case sought to be made on the merits on behalf of the seven remaining plaintiffs.

23 Broadbeach Properties was one of three appeals decided together by the High Court in September 2008. The three matters had also been dealt with together in the Queensland Court of Appeal (Neutral Bay Pty Ltd v Deputy Commissioner of Taxation [2007] QCA 312; (2007) 25 ACLC 1341). The case affecting Broadbeach Properties itself involved income tax. The cases affecting the other two relevant companies, MA Howard Racing Pty Limited and Neutral Bay Pty Limited, involved goods and services tax.

24 The matters before me concern goods and services tax. The Broadbeach Properties aspect of the matter before the High Court is, however, instructive in an important respect. As Mr Jay pointed out, the sequence of events affecting the Broadbeach company was, in a relevant respect, the same as that in the present case: first, the ATO served a statutory demand; second, the company lodged a notice of objection; and, third, the taxpayer company made an application for an order setting aside the statutory demand. One difference, I think, between that case and this is that the objection had been disallowed before the application relating to the statutory demand was heard.

25 The aspects of the High Court's decisions relating to MA Howard Racing and Neutral Bay Pty Limited are relevant for present purposes because of the conclusions reached with respect to the very provisions about goods and services tax that are relevant here.

26 In the High Court, Gummow A-CJ, Heydon J, Crennan J and Kiefel J delivered a joint judgment, while Kirby J delivered a short concurring judgment. The court noted that provisions in Schedule 1 to the Taxation Administration Act with respect to assessment of goods and services tax and penalties are "conclusive evidence" provisions. They exist as part of a statutory scheme that creates debts - being debts, moreover, of a special character imparted by the taxation legislation. Among the peculiar characteristics of such debts, as noted at paragraph [52] of the joint judgment, is that an action for recovery cannot be met by a plea of nunquam indebitatus, or by a traversing of the declaration that the debt is due and payable, or by pleading the pendency of an objection.

27 In short and as is said at paragraph [58] of the joint judgment, the provisions of the taxation legislation “place the existence and amounts of the tax debts outside the area for a genuine dispute for the purposes of section 459H(1) of the Corporations Act.”

28 This authoritative statement of the law means that the genuine dispute part of the case sought to be made on behalf of the seven remaining plaintiffs must fail. It also means that the offsetting claim aspect must fail. Because the taxation legislation creates a conclusive position with respect to the state of the account between the taxpayer and the revenue, it is simply not open to the taxpayer to argue that it is not indebted in the way indicated by that conclusive position or that the revenue is indebted to it in a way not so indicted. It follows that the s 459H(1)(a) and s 459H(1)(b) bases are not made out.

29 That leaves - if it is in truth available, consistently with the principle in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 - the s 459J(1)(b) aspect. On that also, the Broadbeach case indicates quite unequivocally the required outcome.

30 The question of what comes within the s 459J(1)(b) category is to be answered by reference to legislative policy, including the policy of the taxation legislation. That policy makes tax debts recoverable, notwithstanding the pendency of steps directed towards revision of the liability for tax under that legislation.

31 It follows that any appeal to undefined notions of fairness on the ground that a concluded assessment or other quantification against a taxpayer is the subject of challenge initiated by the taxpayer under the taxation legislation is foreign to the operation of s 459J(1)(b) in a case such as the present or, more particularly, to the exercise of the discretion under that section. This very point is made at paragraph [62] of the joint judgment in Broadbeach.

32 An allied point made in paragraph [62] is that the matter of fairness to which I have referred might possibly be relevant if and when a question arises as to the court's discretion to make a winding up order in new and future proceedings in which reliance is placed on failure to comply with a statutory demand relating to a tax debt.

33 I should make two final points. First, Ms Caporale's reliance on the Zolsan Pty Ltd case (above) does not assist her. In that case, Young CJ in Eq followed the Queensland Court of Appeal in the Neutral Bay case, but the decision and reasoning of the Court of Appeal were rejected by the High Court when that matter reached it as one of the three appeals heard together. Zolsan is therefore no longer of assistance.

34 The second point is that the High Court has said in several cases - David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265, Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corp Ltd [2008] HCA 9; (2008) 232 CLR 314 and Broadbeach itself - that the provisions with respect to statutory demands may sometimes appear to operate harshly but this, in effect, is merely part of a deliberately adopted statutory scheme to give effect to a deliberately adopted legislative policy.

35 The outcome of these proceedings is that the claim of each of Mossimo Systems International Pty Ltd, Horizon Developments Sydney Pty Ltd, Precise Constructions Pty Ltd, Integrated Constructions Pty Ltd, Caporale Builders Corporation Pty Ltd, Elite Project Management Pty Ltd and Caporale Group Pty Ltd in the originating process filed on 3 May 2010 is dismissed with costs.

36 In addition, the court notes in relation to the purported claim of each of Matrix Holdings Pty Ltd and Caporale Builders Pty Ltd that the plaintiff is non-existent and that the court has therefore refrained from proceeding further with the claim.

Supreme Court of New South Wales

Mossimo Systems International Pty Ltd v Deputy Commissioner of Taxation [2010] NSWSC 1409 (2 December 2010)