- Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation

Application to set aside the Demand on the basis of a genuine dispute

First, PTPL seeks to set aside the Demand under s 459H of the Corporations Act on the basis that there is a genuine dispute between PTPL and the Commissioner about the existence or amount of the debt to which the Demand relates. Mr O'Mahoney, who appears for PTPL, advances the familiar proposition that the threshold for establishing a genuine dispute is a low one and it is by no means a difficult or demanding threshold and may be likened to the approach in determining a summary judgment application. Mr O'Mahoney submits that a genuine dispute must be "bona fide and truly exist in fact", and must be real and not spurious, hypothetical, illusory or misconceived, and refers to the well-known decisions in Spencer Constructions Pty Ltd v G & M Alridge Pty Ltd (1997) 76 FCR 452 at 464 and TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67 at [56]-[57], [71].
In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd above at 464, the Full Court of the Federal Court of Australia held that a "genuine dispute" must be bona fide and truly exist in fact, and the grounds for that dispute must be real and not spurious, hypothetical, illusory or misconceived. In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd above at [71], Dodds-Streeton JA observed that a company which seeks to establish a genuine dispute or offsetting claim: "… is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. … [I]t is not necessary for the company to advance, at this stage, a fully evidenced claim. Something 'between mere assertion and the proof that would be necessary in a court of law' may suffice."
In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; (2013) 85 NSWLR 601, the Court of Appeal, in summarising the case law applicable to the threshold to demonstrate an offsetting claim, conducted a comprehensive review of the cases referable to establishing whether a genuine dispute was established. Their Honours there emphasised (at [36]) that the Court must be satisfied that there is a serious question to be tried or an issue deserving of a hearing or a plausible contention requiring investigation but also emphasised that the evidence necessary for that purpose "need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable". Their Honours also observed (at [46]) that: "In determining whether there is evidence of a genuine dispute as to the debt, or that there is an offsetting claim, except in extreme cases, the court is not concerned to engage in an enquiry as to the credit of the deponent of the affidavit filed in support of the application."
The Court also summarised the position (at [47]) as being that the Court's role is: "to determine whether there was plausible evidence to establish the existence of a genuine dispute, not whether the evidence was disputed or even likely to be accepted on a final hearing of any such claim."
I also summarised the applicable principles in Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 at [9]-[22], and they were also recently summarised by Gleeson JA in Re AMP Life Ltd [2018] NSWSC 855 at [35]-[38], as follows: "The approach which the court should take to the assessment of a genuine dispute is well-established. It is for an applicant to prove the existence of such a dispute, but the burden of proof is analogous to that which confronts a party on an application for an interlocutory injunction or summary judgment. The function of the court is merely to determine the existence of a genuine dispute; it is not to determine whether the debt exists. The court does not weigh the merits of the dispute or engage in a balancing exercise in relation to competing contentions … The bar for establishing a genuine dispute is not set high; a "plausible contention requiring investigation" will suffice … Other expressions to similar effect can be found in the authorities including that the dispute is "real and not spurious, hypothetical, illusory or misconceived" and "perception of genuineness (or lack of it)" ... The court's state of mind concerning the existence of a genuine dispute may range from a clear conviction that the debt does not exist to an opinion that the genuine dispute hurdle has only just been cleared ..." [citations omitted]
I proceed on the basis that the test for a genuine dispute is not a particularly demanding one and the Court would not embark upon any extended inquiry as to the claims in determining whether a genuine dispute exists.
Mr O'Mahoney submits that a genuine dispute exists in this case by reason that the Commissioner had represented to PTPL that recovery of the debt to which the Demand relates would be put "on hold" while the parties discussed settlement of the disputed debt, and those settlement discussions did not conclude, and the Commissioner took steps to "recover the debts" without prior notice to PTPL that it no longer intends to try and settle the matter. On that basis, PTPL contends that the Commissioner is estopped from issuing the Demand, in respect of the assessments to 30 June 2015. I note, for completeness, that it was common ground that no estoppel could arise in respect of the assessment issued for the year ending 30 June 2016, which was outside the scope of the suggested representation.
Mr O'Mahoney also submits that an estoppel may give rise to a genuine dispute as to a creditor's statutory demand. That proposition appears to be uncontroversial and Counsel proceeded on that basis in Easy Stay Mining Accommodation Pty Ltd v Grounded Construction Group Pty Ltd [2018] FCA 519 at [35], to which Mr O'Mahoney refers. Mr O'Mahoney also refers to Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, where Brennan J observed (at 428) that, in order to establish an equitable estoppel, it was necessary for the plaintiff to prove, first, that: "… the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship."
In Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394 at 444, Deane J observed that the law does not permit an unconscientious departure by one party: "from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to for the purposes of the litigation."
In Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 at 472, Priestley JA observed that an estoppel may be established where there is: "the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable."
In Summer Hill Business Estate Pty Ltd v Equititrust Ltd [2010] NSWSC 776 at [42]ff, Pembroke J identified three key elements of a representational estoppel as being that the defendant's words or conduct must be clear and unambiguous; the plaintiff's conduct in relying to its detriment on those words or conduct must be reasonable; and the defendant must know or intend that the plaintiff will act or abstain from acting in reliance on those words or that conduct or, in effect, have some reasonable expectation that its words or conduct will induce some detrimental reliance by the plaintiff.
Mr O'Mahoney recognises that Courts have generally concluded that estoppel does not lie against a fiscal authority on the basis that it cannot be prevented from pursuing a statutory duty to assess tax in accordance with law and refers to Federal Commissioner of Taxation v Australia & New Zealand Savings Bank Ltd (1994) 181 CLR 466 at 479; Bellinz v Federal Commissioner of Taxation (1998) 84 FCR 154. Mr Krochmalik, who appears for the Commissioner, in turn draws attention to the statutory provisions in the Taxation Administration Act which provide that, regardless of pending objections or a review of the assessment, the Commissioner may recover tax debts that are due. Mr Krochmalik also submits that no estoppel can lie, on the face of the statute, to prevent the Commissioner from enforcing tax debts, where the legislation provides for that to occur. Mr Krochmalik also draws attention to the observations of Barrett J in ISPT Nominees Pty Ltd v Chief Commissioner of State Revenue [2003] NSWSC 697; (2003) 59 NSWLR 196 at [70]-[76], where his Honour reviewed the relevant case law and held that no estoppel precluded the Commissioner from making, by means of the notices purportedly issued under s 37(1) of the Stamp Duties Act 1920 (NSW), the claims for payment challenged by the plaintiff in those proceedings. In Smith v Bone, In the Matter of ACN 002 864 002 Pty Ltd (in liq) [2015] FCA 319; (2015) 104 ACSR 528 at [44], Gleeson J similarly referred to authority for the proposition that no conduct on the part of the Commissioner of Taxation could operate as an estoppel against the operation of the tax legislation.
Mr O'Mahoney submits that this general principle does not prevent PTPL from raising a limited estoppel of the kind for which PTPL presently contends. Mr O'Mahoney referred to several decisions in which Courts have declined to grant summary judgment and allowed claims for estoppel against fiscal authorities to proceed to trial: Deputy Commissioner of Taxation v Winters (1997) 37 ATR 209; Remuneration Planning Corporation Pty Ltd v Commissioner of Taxation (2001) 46 ATR 400; Deputy Commission of Taxation v Roget (No 2) [2014] WADC 25; BBLT Pty Ltd v Chief Commissioner of the Office of State Revenue (NSW) (2003) 54 ATR 323. I accept that that principle suggests, by analogy, that such an estoppel may be sufficiently arguable against a fiscal authority, in a proper case, to give rise to a genuine dispute. However, the several matters to which I refer below, which undermine the factual basis of the asserted estoppel, and displace any suggestion that the Commissioner has departed from the alleged representation, are such that that principle does not assist PTPL.
Mr Krochmalik responds that no genuinely arguable case is established that the Commissioner has resiled from any representation, because the letter dated 10 November 2016 (to which I referred above) did not contain any promissory statement about something the Commissioner would do in the future, but only a statement as to the present attitude of the Commissioner; second, even if a representation was found to involve a promise as to the Commissioner's conduct going forward, then that representation was only that the recovery proceedings would be on hold until the objections were decided, and the second objection was disallowed on 29 November 2016; third, the reference to recovery proceedings in the 10 November letter referred to an action to recover the amounts due as a debt, and not to the issue of a creditor's statutory demand; and, fourth, there is no seriously arguable case that PTPL relied on the representation to its detriment, where PTPL has had the use of the funds that it has not paid to the Commissioner, and the commencement of review proceedings would not have advanced PTPL's position, where an extension of time would have been required by PTPL for such proceedings in any event, and the commencement of such proceedings would not have prevented enforcement of the debt.
Although I have regard to the relatively low threshold that is required to establish a genuine dispute, I am comfortably satisfied that no genuine dispute is established in this matter. First, it does not seem to me that a seriously arguable case is available that the statement made in the letter dated 10 November 2016 from the OSR was either promissory or representational in character or sufficiently clear and unambiguous in any such representation to support an estoppel. Mr Batten had previously sought an "undertaking" that no recovery proceedings would be taken, and it was plain that the OSR did not offer such an undertaking in its letter dated 10 November 2016. It does not seem to me that that letter could reasonably be read as more than a factual statement that, as appears to have been the case, the second objection to the assessments of payroll tax had not yet been determined; recovery proceedings "have been" on hold while discussions were continuing and while objections were being decided and estimating assessments for payroll tax had also been on hold.
Even if, contrary to my view, a seriously arguable case is available that that statement was representational, or clear and unambiguous, it does not seem to me that a seriously arguable case is available that any such representation continued beyond the point at which discussions to settle disputed amounts were no longer being actively pursued and PTPL's objections had been decided adversely to PTPL. Even on PTPL's evidence, there is no suggestion that discussions of settlement occurred after the end of 2017, and PTPL's second objection had been decided, by being disallowed, no later than November 2016. It also does not seem to me that there is any seriously arguable basis to treat that letter as requiring notice to be given by the Commissioner of something that would have been obvious to PTPL, that neither PTPL nor the Commissioner had taken any active step in settlement discussions after late 2017. It is not necessary to determine, given the findings that I have reached on other grounds, whether PTPL has suffered any detriment by reason of the representation on which it relied. There is some force in Mr Krochmalik's submission that PTPL is in no worse position to commence review proceedings now than it would have been previously; the earlier commencement of such proceedings would not have prevented the issue of a creditor's statutory demand to it; and PTPL would therefore have been in no better position than it is now, had the Commissioner given notice of its intent to serve the Demand before it did so.
Third, it seems to me that it is not seriously arguable that the issue of a creditor's statutory demand amounted to the commencement of "recovery proceedings", so as to be inconsistent with the suggested representation. There is authority (to which Counsel, regrettably, did not refer) that the issue of a creditor's statutory demand is not, by its nature, a "proceeding", curial or otherwise. The issue of a creditor's statutory demand also does not bring about the "recovery" of a debt but simply creates a presumption of insolvency, if the debt is not paid within the period permitted for payment under the Corporations Act. If PTPL then establishes its solvency, it will not be wound up, even if it has not paid the debt and, if it does not establish its solvency, it can be wound up even if it has paid the debt, including by the substitution of another creditor in the winding up proceeding.
In Clarke & Walker Pty Ltd v Thew (1967) 116 CLR 465 at 467, the plurality of the High Court observed, in respect of a demand served under a predecessor of the present section, s 222(2)(a) of the Companies Act 1961 (NSW), where a party had undertaken "not to sue or take any proceedings" within a six month period, that: "A multitude of cases may be cited to show that, when used in a context such as the present, the expression "proceedings" denotes, primarily, curial proceedings though no doubt if in the instant case the debt was a secured debt, it would be wide enough to include the exercise of a right given by the security to take extracurial action for the recovery of the debt. So seizure and sale of goods or the appointing of a receiver under powers conferred upon the creditor by the security might, in such a context, be properly regarded as the taking of proceedings. But a mere written demand for payment and a threat to present a winding-up petition at some future time has none of the characteristics of curial proceedings or of the exercise of rights given to a creditor by his security. S[ection] 222(2)(a) does not authorize, and does not purport to authorize, a creditor to make a demand for payment upon his debtor; a creditor needs no statutory authority for this. All that s 222(2)(a) does is to provide a convenient method of proof, if a debtor company for three weeks after service of a demand neglects to pay the sum due or to secure or compound for it to the reasonable satisfaction of the creditor, that a company is unable to pay its debts which, by virtue of the earlier subsection is a ground for winding up."
In St George Bank - A Division of Westpac Banking Corp v Active Property Investment Pty Ltd [2010] NSWSC 736; (2010) 77 NSWLR 148 at [9], Barrett J referred to that decision and observed that: "It is generally only when service of a statutory demand gives rise to an application by the company served for an order setting aside the demand or when a winding up application founded on non-compliance with the demand is made by the serving party that the statutory demand comes to play a part in any proceeding before the court."
In Austurban Construction Pty Ltd v Zaikos Group Pty Ltd [2016] WASC 129 at [8], Master Sanderson referred to both of these decisions and observed that: "There appears to be no doubt issuing a statutory demand is not 'legal process'. That I think is consistent with the High Court authority of Clarke & Walker Pty Ltd v Thew [above]. It also accords with the views of Barrett J in St George Bank - A Division of Westpac Banking Corporation v Active Property Investment Pty Ltd [above]. Against that position there is the decision of Master Adams in Mala Pty Ltd v Johnston (1994) 13 ACLC 100. The learned master's decision does not refer to Clarke & Walker Pty ltd v Thew and it may well be the case was not cited to him. In any event the learned master's decision does not in my view represent the state of the law."
It is therefore not seriously arguable that service of a creditor's statutory demand, which is not the commencement of "recovery proceedings", would be inconsistent with a statement that such proceedings have been put on hold even if, contrary to my view, it was arguable that such a representation had continued effect after the objections had been determined adversely to PTPL and after discussions in respect of any settlement of the disputed amounts were no longer being active pursued.
Fourth, it seems to me that no genuine dispute can be established given the effect of the Taxation Administration Act. Mr Krochmalik submits, and I accept, that there is no room for a genuine dispute as to the amounts that are the subject of the Demand where it is issued in respect of payroll tax, as set out in the several notices of assessment, and s 119 of the Taxation Administration Act provides that the production of a notice of assessment is conclusive evidence of the due making of the assessment and that the amount and all particulars of the assessment are correct, except in objection or review proceedings where it is prima facie evidence only: Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 at [51]-[58]; Mossimo Systems International Pty Ltd v Deputy Commissioner of Taxation [2010] NSWSC 1409 at [26]-[28]; Re Bayconnection Property Developments Pty Ltd [2011] NSWSC 1048 at [5]-[6]; Re Gemaveld Pty Ltd [2012] NSWSC 582 at [3]. As Mr Krochmalik points out, the Court is also deprived of jurisdiction to consider any question as to whether the relevant assessment is correct by reason of s 103A of the Taxation Administration Act. Even if there were, as PTPL contends, a dispute as to whether the Commissioner were entitled to proceed with the Demand, that does not seem to me capable of giving rise to a genuine dispute as to the existence or amount of the underlying debt, for the purposes of s 459H(1)(a) of the Corporations Act, given the provisions in the Taxation Administration Act to which Mr Krochmalik refers. It may, as PTPL contends in the alternative, give rise to some other reason to set aside the Demand under s 459J(1)(b) of the Act in an appropriate case. I will address that question below.
Finally, Mr Krochmalik submits that, if PTPL were otherwise successful, the Court should adopt a similar approach to that which would be taken where an appeal against a judgment was foreshadowed, and require payment of the amount claimed in the Demand into Court as a condition of setting aside the Demand: Arora Markets Pty Ltd v Workers Compensation Nominal Insurer [2015] NSWSC 107 at [42]-[44]; Douglas Aerospace Pty Ltd v Indistri Engineering Albury Pty Ltd [2015] NSWSC 167 at [53]. If, despite all of the matters noted above and contrary to my view, a genuine dispute were established, I would only have set aside the Demand on a conditional basis and subject to PTPL paying the amount claimed in the Demand into Court within 14 days, pending the determination of its proposed proceedings for a review of the objection decisions.

Application to set aside the Demand for some other reason

Mr O'Mahoney submits, and I accept, that s 459J(1)(b) of the Corporations Act confers a discretion to set aside a creditor's statutory demand, and is available at least where the issue of that demand would be unconscionable or amounts to an abuse of process or where the issue of the demand would subvert the statutory scheme: Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation (2005) 157 ACTR 22 at [27]; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393 at [33]. The Court's power to set aside a demand under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Corporations Act and is not exercised by reference to subjective notions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (Aust) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746; Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 at [16]; Re Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236 at [24].
Mr O'Mahoney submits, and I accept, that representations founding an estoppel could in an appropriate case constitute "some other reason" for setting aside a creditor's statutory demand, as Brereton J observed in Re Bevic Holdings Pty Ltd [2015] NSWSC 732 at [43]. Mr Krochmalik in turn submits that there is little scope to set aside a creditor's statutory demand for some other reason under s 459J(1)(b) of the Corporations Act where it relates to the recovery of tax debts, by reason of the wider legislative policy that tax debts be recoverable, including where a review application is pending: Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd above at [59]-[62]. Mr Krochmalik submits, and I accept, that the matters which would make it more difficult to establish some other reason to set aside the demand where there is a dispute as to the underlying tax debt will also, at least, be relevant where there is a dispute as to the entitlement to pursue that debt.
Mr Krochmalik also draws attention to my observation in Re Oztec Pty Ltd [2012] NSWSC 1234 at [35] that: "… the scope for s 459J(1)(b) of the Corporations Act to operate in respect of tax debts is also constrained by Broadbeach Properties, where the plurality of the High Court emphasised that the application of s 459J(1)(b) in this context must have regard to the legislative policy which provides for the recovery of tax debts. In Mossimo Systems International Pty Ltd v DCT above at [30]-[31], Barrett J observed that: "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." 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 [62] of the joint judgment in Broadbeach."
In MNWA Pty Ltd v Deputy Commissioner of Taxation [2016] FCAFC 154; (2016) 117 ACSR 446; (2016) 250 FCR 381 at [123], the Full Court of the Federal Court also observed that the generality of the Court's discretionary power under s 459J(1)(b) to order that a statutory demand be set aside "because there is some other reason" should not be hedged about by implied limitations and observed that that discretion is to be exercised judicially and is "unconfined except by reference to the subject matter, scope and purpose of Pt 5.4 in the more general context of the Corporations Act". The Court also observed (at [124]) that a relevant consideration, in exercising that discretion, where the Commissioner of Taxation is seeking to recover a taxation debt, is that the debt is made due, payable and recoverable under the taxation laws and the demand is served in aid of a winding up application.
At least in this context, the basis of an application to set aside a creditor's statutory demand for some other reason must be established on the balance of probabilities, and not merely on the basis of a seriously arguable claim that would found a "genuine dispute". In MNWA Pty Ltd v Deputy Commissioner of Taxation above at [192], the majority (Farrell and Davies JJ) emphasised the statutory regime for the recovery of tax, and the recognition of the proper use of the creditor's statutory demand proceeding in aid of a winding up application in respect of tax debts in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd above, and observed that: "Given the statutory scheme for collection and recovery of tax, an arguable basis for disputing the Commissioner's right to take recovery action is insufficient to constitute 'some other reason' within the terms of s 459J(1)(b) and does not support an exercise of power to set aside the statutory demands under that section."
Where PTPL has not been able to establish a genuine dispute based upon the representation said to have founded the relevant estoppel, for the several reasons noted above, then it plainly cannot establish that estoppel on the balance of probabilities so as to establish some other reason to set aside the Demand. For completeness, I can also see no element of unconscionability, abuse of process or inconsistency with the statutory scheme in the Commissioner issuing the Demand, so as to seek to obtain the benefit of a presumption of insolvency to found winding up proceedings, where the debt claimed in the Demand has not been paid; the objections to the assessments were disallowed long ago; and there has been no active attempt by PTPL to pursue a settlement since late 2017, over eight months ago. Had I reached the contrary view, I would only have set aside the Demand on a conditional basis, and subject to PTPL paying the amount claimed in the Demand into Court within 14 days, pending the determination of its proposed proceedings for a review of the objection decisions.
Also for completeness, no basis has been shown for the alternate relief claimed by way of a declaration that the Demand is null and void.

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