- Ballam v Ferro

Supreme Court of NSW|2024-02-22|Before: Black J

Solicitors: Ernst & Young (Plaintiff) McInnes Wilson Lawyers (Defendant) File Number(s): 2023/333814

Nature of the application

By Originating Process filed on 20 October 2023, the Plaintiff, JDH Capital Pty Ltd ("JDH") applies to set aside a creditor's statutory demand dated 26 September 2023 ("Demand") issued by the Deputy Commissioner of Taxation ("DCT").
The Demand claims the amount of $3,404,812.73 as specified in the schedule to the Demand. The first and largest item claimed in the Demand is described as a running balance account ("RBA") deficit debt as at 26 September 2023 in respect of specified amounts totalling $3,189,993.07. Additional amounts are claimed in respect of income tax liability and interest for the years ending 30 June 2020 and 30 June 2021 and for fringe benefit tax liability and interest for the years ended 31 June 2017, 31 March 2018 and 31 March 2019, administrative penalties and interest and a shortfall interest charge. The Demand is verified by an affidavit dated 26 September 2023 of Ms Maria Llorca who indicates her belief that there is no genuine dispute about the existence or amount of any of the debts. As matters have emerged at the hearing, only part of the amount claimed as the RBA deficit debt is now contested by JDH.
The basis on which JDH seeks to set aside the Demand is described in the Originating Process as being that: "1. The Demand is defective on the basis that the "debt" claimed includes debts which are not due and payable and/or are inadequately described. 2. There is a genuine dispute between [JDH] and [DCT] as to the amount of the debt to which the Demand issued by the [DCT] on 26 September 2023 relates."
Mr Aspinall, who appeared for JDH when this matter was heard on 16 February, abandoned the first basis on which JDH sought to set aside the Demand and all that remains is a question whether there is a genuine dispute as to part of the debt claimed by the DCT.

The statutory regime and applicable principles

It will be convenient to set out the applicable provisions of the tax legislation and the statutory basis on which the Demand may be set aside or varied under s 459H of the Corporations Act 2001 (Cth) ("Act") before turning to the affidavit evidence on which the parties rely.
There was a degree of common ground between the parties as to the applicable provisions of the tax legislation, although they ultimately have limited significance for the outcome of this matter. In opening submissions, Mr Robertson and Mr Aspinall (who appeared for JDH) pointed out that the PAYG withholding system is established by Schedule 1 to the Taxation Administration Act 1953 (Cth) ("TAA"). They noted that s 6-5(2) of the Schedule to the TAA states that: "Under PAYG withholding, amounts are collected in respect of particular kinds of payments or transactions. Usually, someone who makes a payment to you is required to withhold an amount from the payment, and then to pay the amount to the Commissioner. For a list of the payments and other transactions to which PAYG withholding applies, see Division 10"
Mr Robertson and Mr Aspinall in turn note that s 10-5 of Schedule 1 to the TAA provides a summary of the types of withholding payments, which relevantly include (as all Counsel recognise) the payment of salary to an employee (s 12-35) and the payment of remuneration to a director (s 12-40), as follows: "12-35 Payment to employee An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity). … 12-40 Payment to company director A company must withhold an amount from a payment of remuneration it makes to an individual: (a) if the company is incorporated--as a director of the company, or as a person who performs the duties of a director of the company …"
Mr Raffell, who appeared for the DCT, also points out that the liability to pay PAYG withholding amounts to the Commissioner (as a primary tax debt) arises under s 16-75 of Schedule 1 to the TAA, where an employer withheld an amount under Division 12 of the Schedule to the TAA. He points out that an employer is also required to notify the Commissioner of the amounts it withheld under Subdivision 12-B of the Schedule 1 to the TAA, under what is known as the "Single Touch Payroll".
Mr Raffell also pointed out that Part IIB of the TAA (comprising ss 8AAZA - 8AAZN) is headed "running balance accounts, application of payments and credits, and related matters". He noted that, under s 8AAZC(1) of the TAA, the Commissioner may establish a system or systems of accounts for the "primary tax debts" of an entity and each such account is known as an RBA under s 8AAZC(2) of the TAA. He notes that the Commissioner may establish an RBA on any basis that he determines, including for different types of primary tax debts under ss 8AAZC(4) and (4A). He points out that a "primary tax debt" is defined in s 8AAZA to mean, relevantly, "… any amount due to the Commonwealth directly under a taxation law … including any such amount that is not yet payable" and that "taxation law" is defined to include, relevantly: "an Act of which the Commissioner has the general administration …". Mr Raffell also points out that the Commissioner may allocate a primary tax debt to an RBA that has been established for that type of tax debt under s 8AAZD(1) of the TAA and, for the purposes of that section, a primary tax debt does not include general interest charge ("GIC") or an RBA deficit debt: s 8AAZD(2). The term "RBA deficit debt" is in turn defined in s 8AAZA of the TAA to mean, in relation to an RBA of an entity, a balance in favour of the Commissioner. Pursuant to s 8AAZH of the TAA, if there is an RBA deficit debt at the end of a day, the tax debtor is liable to pay the Commonwealth the amount of the debt, which is due and payable at the end of that day; and, if there is an RBA deficit debt at the end of the day, the GIC is payable on that RBA deficit debt and is added to the balance of the RBA by operation of s 8AAZF of the TAA.
Mr Raffell also refers to the explanation of the purpose of the RBA regime in H'Var Steel Services v Deputy Commissioner of Taxation [2005] WASCA 71 (at [17]), where Wheeler JA, with whom Roberts-Smith and Pullin JJA agreed, observed that: "… the RBA is designed as a way of facilitating the collection of a variety of different types of taxes which owe their existence to a variety of other pieces of tax legislation."
Mr Robertson and Mr Aspinall in turn refer to the High Court's observations, in Federal Commissioner of Taxation v Travelex Ltd (2021) 271 CLR 605; (2021) 388 ALR 305; [2021] HCA 8, as to the nature of an RBA deficit debt and point out that the Court observed (at [29]) that: "[a]n allocation that the Commissioner in fact makes to an RBA of an amount the Commissioner is not legally obliged to pay to a taxpayer under a taxation law cannot result in an RBA surplus any more than an allocation in fact of an amount not legally due to the Commonwealth under a taxation law can result in an RBA deficit debt."
I now turn to the applicable provisions of the Act. JDH now only presses its claim to set aside or vary the Demand on the basis of a genuine dispute under s 459H(1)(a) of the Act. The Court has power to set aside a creditor's statutory demand under that section where there is a genuine dispute between the company and the issuer of the demand about the existence or amount of the debt to which the demand relates.
In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 (at 464); [1997] FCA 681, the Full Court of the Federal Court observed that a genuine dispute must be bona fide and truly exist in fact, and the grounds for the dispute must be real and not spurious, hypothetical, illusory or misconceived. The threshold to establish a genuine dispute is not high, and it is necessary to bear in mind the observations of Barrett J (as his Honour then was) in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 (at [18]) that: "Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The Court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger."
I also have regard to the decision of the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 where, in summarising the case law applicable to offsetting claims, the Court of Appeal undertook a comprehensive review of the cases referable to establishing whether a genuine dispute was established. The Court emphasised (at [36]) that the evidence necessary for that purpose "need not conclusively prove or otherwise be incontrovertible or substantially non-contestable", and 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 inquiry as to the credit of the deponent of the affidavit filed in support of the application." The Court also emphasised (at [47]) that the Court's role was, in such an application: "… 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."
In Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 (at [8]), Barrett AJA in turn approved my observations in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 (at [9]-[22]), that summarised the principles applicable to a genuine dispute as follows: "(1) A dispute is "genuine" if it is not "plainly vexatious or frivolous" or "may have some substance" or "involves a plausible contention requiring investigation". A genuine dispute requires that it be bona fide and, to that effect, be premised on sufficiently particularised grounds that are "real and not spurious, hypothetical, illusory or misconceived" and which demonstrate the dispute's "objective existence" and "prima facie plausibility". (2) The test is governed by principles analogous to those which underpin an application for an interlocutory injunction or summary judgment. The court must, however, guard against setting the threshold too low for that is liable to defeat the legislative purpose of the section. (3) The task faced by a company challenging a statutory demand on the genuine dispute ground is by no means at all a difficult or demanding one. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow and the demand will be set aside. A finding to the contrary could only be arrived at if the contentions advanced are so devoid of substance that no further investigation is warranted. (4) The function of the court is merely to determine the existence of a genuine dispute. While this neither requires nor invites it to weigh or assess the merits of the dispute, the court will not exceed its legitimate function by having regard to evidence which bears upon whether the asserted dispute is genuine."'
A similar approach was adopted by the Court of Appeal in Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212; [2017] NSWCA 300 and again by the Court of Appeal in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60. I have drawn here on my summary of the applicable principles in Re PSR Refining Services Pty Ltd [2023] NSWSC 243 (at [16]ff). Where, as here, only part of the debt claimed is disputed, the Court must determine the "substantiated amount" under s 459H of the Act which, absent an offsetting claim, is the "admitted amount", as defined in s 459H(5) as, relevantly, so much of the debt as the Court is satisfied is not the subject of a genuine dispute.

Affidavit evidence

JDH reads the affidavit of 20 October 2023 of its solicitor, Mr Caplice, in support of the application. JDH does not lead evidence of any director or officer involved in the conduct of its business and, initially, largely did not tender the business records which were referred to in Mr Caplice's evidence. Mr Caplice refers (Caplice [3]) to his review of JDH's business records comprising certain documents, and qualified (Caplice [4]) the views he expresses by noting that he had "limited time" to review those documents. He asserts (Caplice [6]) that, based upon his review of those business records, the schedule to the Demand includes amounts that are not due and payable by JDH.
Mr Caplice accepts (Caplice [7]) that JDH does not dispute that certain amounts specified in the Demand are due and payable, totalling $214,819.66 and he foreshadows that, although JDH had not paid those amounts when they were due, it would pay them within the period for compliance with the Demand specified in s 459F of the Act after the determination of this hearing. In paragraph 9 of that affidavit, Mr Caplice states that: "Using information obtained from the ATO portal, staff in my employ have prepared an excel spreadsheet attempting to ascertain the basis for the amount claimed."
The attached spreadsheet refers to an amount of $2,262,019 for the PAYG amount as distinct from the amount claimed by the DCT. JDH does not tender the information obtained from the ATO portal to which reference is made in this paragraph, or lead evidence of the calculation performed by Mr Caplice's staff to determine the amount that they have derived. I will return to the significance of that matter below.
Mr Caplice in turn describes (Caplice [10]) largely by way of submission, his understanding of how the amount of $3,189,993.07 claimed by the DCT was calculated, and raises the possibility of an immaterial typographical error in the Demand. No submission was made that the Court should vary the Demand in respect of that error. Mr Caplice also states (Caplice [11]) his "belief" that four of the seven amounts included in that calculation are overstated and that there is a genuine dispute as to whether they are due and payable. Mr Caplice (Caplice [12]) also annexes profit and loss statements for JDH extracted from its unaudited financial statements for two financial years ending 30 June 2020 and 30 June 2021 and JDH's wages and salaries account extracted from its Xero general ledger for the years ended 30 June 2022 and 30 June 2023 and refers to the amount of gross salary and wages recorded in those accounts and contends that the "most significant proportion" of the wages and salary amounts referred to related to Mr Huynh and Mrs Huynh (also known as Ms Xie). He also annexes (Caplice [14]) extracts from "ATO pre-filling reports" for Mr Huynh and Mrs Huynh for those four years and refers (Caplice [15]) to the gross amounts of salary and wages there recorded as "purportedly" received by Mr Huynh and Mrs Huynh.
Mr Caplice then states (Caplice [16]) that: "I am informed by Mr Huynh and do verily believe that the gross amounts of the salaries and wages for Mr Huynh and Mrs Huynh referred to in paragraph 15 above were, in fact, not paid to them." Although no objection was taken to that evidence, it is no more than a bare assertion made by Mr Huynh to Mr Caplice which is then repeated by Mr Caplice, and does not indicate what Mr Huynh understands to be the criterion for determining whether amounts were "paid" to him or to Mrs Huynh or the basis on which he formed the asserted conclusion. The asserted conclusion was plainly inconsistent with the financial records which have been tendered, so far as they record (as Mr Caplice acknowledges) the payment of substantial amounts to Mr Huynh and Mrs Huynh.
Mr Caplice then makes several conclusory statements (Caplice [16]ff) which appear to be derived from documents that are not evidence, which were admitted as submission and to identify JDH's contentions under s 136 of the Evidence Act 1995 (NSW) and not as proof of the fact. Those statements are not capable of establishing any genuine dispute or supporting any contention that the amount claimed by the DCT is not due and payable, unless evidence exists which is capable of establishing the fact asserted in them. Mr Caplice in turn refers to PAYG instalments, goods and services tax, fringe benefits and general interest charges ("GIC") which are included in the Demand, but DCT's claim to those amounts is not challenged, other than to the extent that any interest calculation will be affected by any genuine dispute as to the amount of withheld PAYG claimed by the DCT.
JDH also tendered a letter dated 16 November 2023 from the DCT's solicitors (Ex P1), where the DCT relied on conclusive evidence provisions on which it no longer relies at the hearing. It does not seem to me that this letter advances JDH's position or provides any real explanation of JDH's failure, initially, to tender the documents on which it subsequently relied.
The DCT in turn reads the affidavit dated 5 December 2023 of Ms Llorca. Ms Llorca sets out the systems maintained by the Australian Taxation Office ("ATO"), including specified computer systems, although it appears that no dispute is raised by JDH which calls the integrity of those systems into question. Instead, JDH's challenge arises from its claim that the information that it has provided to the DCT was incorrect. Ms Llorca leads evidence as to the business activity statement ("BAS") forms and instalment activity statements ("IAS") forms provided by JDH to the ATO and sets out, by way of evidence largely admitted as submission, the manner in which liabilities that were notified to the Australian Tax Office are treated as "primary tax debts" within the meaning of s 8AAZA of the TAA. I have referred to the structure of the applicable legislative provisions above. Ms Llorca also refers to the position in respect of income tax, fringe benefits tax, administrative penalties and a short fall interest charge in respect of JDH, although her evidence in that regard is largely directed to matters which are no longer challenged by JDH. Ms Llorca had no opportunity to address additional documents first produced and tendered by JDH at the hearing, to which I refer below.
After Mr Aspinall, who appears for JDH, had completed his closing submissions and at the commencement of then opening submissions of Mr Raffell who appears for the DCT, I permitted JDH to reopen its case to tender documents which had not previously been tendered, where it would otherwise plainly have failed to establish the genuine dispute it claimed by reason of the inadequacy of its evidence. JDH then tendered (Ex P2) its financial report for the year ended 30 June 2020, which recorded loans from directors of $3,092,939 as at 30 June 2020; and its financial report for the year ended 30 June 2021 which recorded loans from directors as at 30 June 2020 of $2,973,889 (inconsistent with the figure recorded for that date in the financial report for the previous year) and of $5,062,151 as 30 June 2021. As Mr Raffell points out, those documents do not identify the loans to directors as originating in any salary or wages not paid to Mr and Mrs Huynh in those years. JDH also tendered (Ex P3) documents which it contended reflected entries in its Xero accounting records, indicating salaries and wages of $949,799.98 accrued for Mr and Mrs Huynh between 7 September 2021 and 30 June 2022 and of $350,165.99 accrued for Mr and Mrs Huynh between 31 March 2023 and 30 June 2023.
After JDH tendered these documents, the DCT tendered tax returns for Mr and Mrs Huynh for the years ended 30 June 2020 and 30 June 2021 (Ex D1), which were consistent with the other tax reporting by JDH to the DCT, and inconsistent with the position for which JDH now contends, by reporting the amounts in issue as income of Mr and Mrs Huynh. Those documents did not take matters much further, because, if there was an arguable case or plausible contention that JDH (under Mr and Mrs Huynh's control) had been in error in treating the wages paid to Mr and Mrs Huynh as paid rather than accrued as a loan, it would not have been surprising that Mr and Mrs Huynh had made the same error in their individual tax returns.
The DCT then fairly accepted, consistent with its obligations as a model litigant, that the entries in JDH's accounting records in Ex P3, as tendered on the reopening of its evidence, were capable of establishing a genuine dispute as to the fact that Mr and Mrs Huynh had been paid the amounts there referred to, on the basis that were consistent with those amounts have been instead treated as a loan to JDH rather than paid to them. The DCT did not accept that the Demand should be reduced to reflect any further amounts recorded as directors' loans in the financial reports (Ex P2) where there was no indication in those documents that those loans arose from the accrual rather than payment of salary or wages.
The proceedings were then adjourned to 22 February 2023 to permit the DCT to recalculate the amount it claimed, having regard to that additional information. At the further hearing on 22 February, the DCT indicated that it had recalculated the amount that it claimed, by reference to that further evidence, to reduce the principal claimed in respect of PAYG withholding tax to $529,215.46, reduce the general interest charge to $51,989.35, and reduce the amount of the debt claimed from $3,404,812.73 to $2,823,607.92. The DCT also fairly accepted that the Demand should be varied to the lesser amount.

The parties' submissions

In opening submissions for JDH, Mr Robertson and Mr Aspinall (who, as I noted above, appeared for JDH at the hearing) challenged the DCT's claim in the Demand to the RBA deficit debt to which I referred above. They pointed out that this amount is based upon BAS provisions, including, relevantly, PAYG withholding provisions and GIC provisions. They submitted, and I understand it is now common ground, that, by contrast with an RBA deficit debt based on assessment provisions, the Court's jurisdiction to determine if there is a genuine dispute about this amount is not limited by any "conclusive evidence" provision. They also submitted, by reference to Mr Caplice's evidence, that approximately $2.2 million has been wrongly attributed by the DCT to PAYG withholding and that, to the extent that amount is relied on for GIC charges, a genuine dispute extends to the amounts of GIC that flow from the PAYG withholding debt.
Mr Robertson and Mr Aspinall there addressed the statutory provisions to which I have referred above. They submitted that the PAYG provisions to which I referred above do not require that an "entity", relevantly JDH, must withhold from amounts "it pays to an individual" and that it is payment to the individual which gives rise to the obligation to withhold rather than simply a liability to pay at some future time. That is likely common ground, but it directs attention to whether there is a serious question to be tried that the amounts were not paid to Mr and Mrs Hyunh and amounts were not withheld from them, despite JDH's reporting the contrary to the DCT. Mr Robertson and Mr Aspinall point out that Mr Caplice's evidence is that the amounts have not been paid, but instead remain a liability of JDH, but I have pointed to the limited weight that can be given to that evidence, much of which was not admitted to prove the asserted fact.
Mr Robertson and Mr Aspinall also pointed to JDH's unaudited financial statements for the 30 June 2020 and 2021 income and the Plaintiff's Xero general ledger for the 30 June 2022 and 2023 income years, which were only tendered on reopening and which I have addressed above. They submitted that the amounts of "salary and wages" have not been paid (or, implicitly, there is a genuine dispute that they were paid) within the meaning of the TAA and there is a genuine dispute that they are primary tax debts able to be included in an RBA. I do not accept that a genuine dispute as to the payment of those amounts is established, beyond the extent to which it has been conceded by the DCT, for the reasons noted in dealing with the evidence above.
Mr Robertson and Mr Aspinall also submitted that, while the DCT relies upon an RBA to prove the RBA deficit debt that is in dispute, the tender of a certificate based upon it does not assist the DCT. They submitted that, under s 8AAZI of the TAA, the RBA is only "prima facie evidence" of what it shows, placing the evidentiary burden on JDH, and it does not prevent an allegation that the DCT has included incorrect entries in an RBA: Evan v DCT (2012) 89 ATR 108; Guss v Deputy Commissioner of Taxation [2015] FCA 841. They submitted that the effect of the certificate prepared by the Commissioner is likewise merely "prima facie evidence" under s 8AAZJ of the TAA, and that these proceedings are not "proceedings for recovery of an RBA deficit debt". They also submitted that these provisions do not alter the position where JDH must establish the genuine dispute for which it contends. It is not necessary to address this contention further, where, irrespective of those provisions, JDH has not established a genuine dispute beyond the concession made by the DCT.
Mr Robertson and Mr Aspinall also pointed out that, under the definitions in the TAA, an RBA deficit debt means a balance in favour of the DCT, based on primary tax debts that have been allocated to the RBA and that are currently payable and payments made in respect of current or anticipated primary tax debts of the entity, and credits to which the entity is entitled under a taxation law, that have been allocated to the RBA. They pointed out that a "primary tax debt", with an exception that is not presently relevant, means any amount due to the Commonwealth directly under a taxation law, including any such amount that is not yet payable. They submitted that, unless a debt is a "primary tax debt", it cannot form part of an RBA deficit debt, and the mere recording of a debt within an RBA merely provides prima face evidence that the underlying debt is a primary tax debt. That also does not assist JDH where it has not otherwise established a genuine dispute beyond the concession made by the DCT.
In oral submissions on 16 December, Mr Aspinall placed particular weight on Manzi v Smith (1975) 7 ALR 685, as authority that the making of journal entries by DCT recording a liability to Mr and Mrs Huynh would not establish payment to them. That submission does not assist JDH in establishing that there is a serious question to be tried that payment was not made to them, of amounts that are not recorded in the Xero ledgers and does not take JDH beyond the concession that the DCT properly made in that regard. Mr Aspinall also drew attention to the approach adopted by White J in Re Citadel Finance Corporation Pty Ltd [2019] NSWSC 65, where an interest charge had to be recalculated after a taxpayer established an offsetting claim. The DCT has here recalculated that charge, to reflect the concession it properly made reflecting the accruals recorded in the Xero ledgers to which I referred above.
In opening submissions, prior to the tender of additional documents by JDH to which I referred above, Mr Raffell pointed to an unusual feature of this application, that JDH sought to establish a genuine dispute as to amounts that it had itself self-reported to the DCT. Mr Raffell also referred to the applicable statutory provisions and to Ms Llorca's evidence of an "RBA statement" (at MVL-C to her affidavit) which was prepared by the Commissioner in accordance with s 8AAZG of the TAA which states that as at 26 September 2023 the "running balance" was $3,189,993.07 DR. Mr Raffell pointed out that this is the amount of the RBA Deficit Debt in sub-paragraph (a) of the Schedule to the Demand. He submitted that the production of the RBA Statement by the Commissioner in these proceedings (at MVL-C) was prima facie evidence that the RBA was duly kept, and that the amounts and particulars of the statement are correct and, in particular, it was prima facie evidence that JDH had an "RBA deficit debt" of $3,189,993.07 as at 26 September 2023 and, pursuant to s 8AAZH(1) of the TAA, JDH was liable to pay the amount of that RBA deficit debt to the Commissioner at the end of the day on 26 September 2023 and it was due and payable at the end of that day. This position is now qualified by the concession made by the DCT to which I referred above.
Mr Raffell also referred to several documents lodged by JDH with the DCT which supported the DCT's calculation of PAYG withheld by JDH and payable to the DCT. He pointed out that the relevant BASs included statements made by JDH to the Commissioner with respect to gross salaries and wages paid in the relevant tax period and with respect to the amount that JDH withheld from those payments of gross salaries and wages, and points out that the amounts of tax withheld which JDH stated in its relevant BASs are reflected in the PAYG withholding liability of JDH which has been allocated to the RBA over the same period. He submitted that the "ATO pre-filling reports" which Mr Caplice annexes to his affidavit at MPC-F, MPC-G, MPC-H and MPC-I were further statements to the Commissioner that "gross payments" of salaries and wages in specified amounts were paid to Mr and Mrs Huynh and that tax was "withheld" in the specified amounts for the years ended 30 June 2020 to 30 June 2023. Mr Raffell submitted that the disclosures in the ATO pre-filling reports with respect to gross payments made of salaries and wages are consistent with the "salaries & wages" expenses recognised in JDH's financial statements for the years ended 30 June 2020 to 30 June 2023, which are annexures MPC-B, MPC-C, MPC-D and MPC-E to the Caplice Affidavit. He submitted that the Court should not now accept Mr Caplice's evidence to the contrary, on information and belief from Mr Huynh, and I have addressed that evidence above. There is no doubt that contemporaneous taxation records, including the tax returns of Mr and Mrs Huynh (Ex D1) to which I referred above reflect that position. I have addressed the question whether the evidence establishes a serious question that JDH and Mr and Mrs Huynh wrongly proceeded on that basis, beyond the extent to which the DCT now concedes that is arguable for part of the Demand above.
Mr Raffell also submitted that there is no evidence of any attempt by JDH to correct or amend the statements about PAYG withholding amounts it made to the Commissioner in the ATO pre-filling reports and/or in the BASs lodged which are referable to the income years ended 30 June 2020 to 30 June 2023. While I accept that is the case, it does not seem to me that a lack of action in that respect would significantly undermine a genuine dispute if it were otherwise established. Mr Raffell also submitted that: "it is noteworthy that the effect of the Plaintiff's evidence (if it was accepted), must be that it had a contractual obligation to pay the salaries and wages which have been disclosed as expenses in its accounts for the years ended 30 June 2020 to 30 June 2023, but that, as at October 2023 (and February 2024 by inference), it has failed to fulfil its contractual obligation to pay those salaries and wages to its employees / director. That is, for over 4 years it has failed to pay its employees / director the salaries and wages that they were contractually entitled to. In the Commissioner's submission, this is inherently unlikely and should not be accepted without objective documentary evidence to support it. The implausibility of this further increases when the evidence is that the Plaintiff claimed deductions for these salaries and wages expenses in its income tax return lodged with the Commissioner for at least the income years ended 30 June 2020 and 30 June 2021."
I give limited weight to this matter, where the large part of the dispute is directed to whether or not payments were made to Mr and Mrs Hyunh, and it is more plausible that directors of a proprietary company would allow salary to accrue rather than to be paid in money than that employees at arm's length would do so. That does not, of course, answer the oddity that the reporting by JDH to the DCT did not reflect that position, which I have addressed above.
There was also a difference between the parties as to the opening balance of the PAYG withholding tax which was the subject of the Demand. The DCT's position was that the RBA deficit debt of $3,189,993.07 as at 26 September 2023 included PAYG withholding tax in an amount of $1,951,692.61. Mr Raffell submitted that the production of the RBA statement by the Commissioner in these proceedings is prima facie evidence of the amounts contained in the RBA statement, although it is not necessary to decide that matter for the reason noted below. Any dispute as to this matter rises no higher than the evidence in paragraph 9 of Mr Caplice's affidavit that his staff have calculated a different figure from information that was not tendered by a calculation that was also not disclosed. The evidence is not sufficient to raise a genuine dispute as to that amount, and it is not necessary to have regard to the DCT's evidence or its submissions in response where no genuine dispute was raised.
Mr Robertson, who appeared at the adjourned hearing on 22 February and made JDH's submissions in reply, made subtle submissions as to the onus of proof which would attach in contexts other than an application to set aside a creditor's statutory demand. He drew attention to an observation of Dixon J in Federal Commissioner of Taxation v Steeves Agnew & Co (Vict) Pty Ltd (1951) 82 CLR 408; [1951] HCA 26 (at [16]), to the effect that "definite transaction amounting to payment" would be required to give rise to an obligation to deduct PAYG tax. He also referred to an observation in Young v Queensland Trustees Ltd (1956) 99 CLR 560; [1956] HCA 51 as to the presumption of the continuance of a debt until it is otherwise discharged or extinguished unless some payment or other discharge is proved. Mr Robertson also drew attention to an observation of Besanko J in Kelly v Commissioner of Taxation [2012] FCA 423 that a dispute in that case, between the taxpayer and the Commissioner of Taxation, was to be resolved by applying principles as to determining the existence or non-existence of a trust or valid equitable assignment by a Court exercising equitable jurisdiction. That observation was not made in respect of an application to set aside a creditor's statutory demand and it is not apparent that it is directed to any issue that is capable of arising here. It is not apparent to me that any of those authorities advance the issues that I have to determine, and it is well-established that it is for the party seeking to set aside a creditor's statutory demand to establish a genuine dispute as to the debt claimed. Here, that would require JDH to lead evidence raising a serious question to be tried as to whether the relevant payments were made, the relevant tax withheld and the relevant tax liability arose in consequence, and I have found that it did not do so, beyond the concession now made by the DCT, above. In the event, Mr Robertson ultimately accepted in the course of oral submissions that the question was whether JDH had established an arguable case or plausible contention that amounts of salary were payable but not paid, and I have found that it has not done so, other than for the amounts now conceded by the DCT in respect of the 2022 and 2023 years.
Mr Robertson also developed a new case, in reply, that a plausible case or plausible contention is available to DCT that the position in 2020 and 2021 was the same as that recorded in the Xero ledgers that were tendered for 2022 and 2023. I do not accept that submission, where JDH led no evidence that provided any support for that proposition.

Determination

For the reasons I have indicated above in addressing the evidence and submissions, it seems to me that JDH has, once it was permitted to reopen, established a genuine dispute as to the amount claimed in the Demand in the amount which the DCT has fairly conceded. It has not established a genuine dispute beyond the amount conceded by the DCT, where Mr Caplice's evidence (including the matters of which he was informed by Mr Huynh) does not rise beyond assertion and submission and the evidence led as to the existence of loans by directors does not have any apparent link with the accrual of salary or wages beyond that arising from the Xero records. That genuine dispute is properly addressed by calculating the admitted amount in accordance with s 459H of the Act in the amount which the DCT has now calculated.

Costs

At the hearing on 16 February 2023, I adjourned the proceedings to 22 February 2024 on terms that JDH pay the costs thrown away by the adjournment on an indemnity basis, and I reserved to the DCT the ability to seek an order for a gross sum costs order in respect of costs thrown away. The parties have agreed that JDH should pay the DCT's costs pursuant to that order in the amount of $9,619.20, calculated on a gross sum basis, and I will make an order to that effect.
It remains to address the position in respect of costs as to the balance of the proceeding. The applicable principles as to an order for costs are well-established. Section 98 of the Civil Procedure Act 2005 (NSW) confers a discretionary power to determine costs on the Court and requires that that discretion be exercised judicially: Ballam v Ferro (No 2) [2022] NSWSC 1358 (at [54]). Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") in turn provides that: "Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs."
A successful party has a "reasonable expectation" of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (at [22] and [134]). In Commonwealth of Australia v Gretton [2008] NSWCA 117 (at [121]), Hodgson JA (with whom Mason P agreed) observed that: "… underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs."
In Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 (at [7]-[14]), McColl JA summarised the applicable principles as follows: "Section 98 of the Civil Procedure Act 2005 (NSW) confers a wide discretion on the court with respect to costs. The general rule is that court costs follow the event unless the court makes some other order pursuant to the discretion conferred by Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.1. As Beazley JA explained in Baker v Towle [(2008) 39 Fam LR 323; [2008] NSWCA 73 at [11] (Mathews AJA agreeing)], in most litigation, UCPR r 42.1 "operates in a straightforward way, 'the event' being readily identifiable as a judgment for the plaintiff or the defendant on the claim. In that sense, 'the event' to which the rule refers is the result of the proceedings, so that the party who succeeds on the claim before the court is awarded costs, unless the court, pursuant to the discretion conferred by r 42.1, makes 'some other order'". Underlying both the general rule that costs follow the event, and qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. …"
The Court has "a broad discretion, to be exercised according to the purpose of compensating, at least in part, the costs reasonably incurred by a successful party in establishing its rights, subject to the need to accord fairness to each party in the particular circumstances of the case": Galati v Deans (No 2) [2023] NSWCA 252 (at [6]-[9]). I have here drawn on my summary of the applicable principles in Gouros v Order of AHEPA NSW Inc; Order of AHEPA NSW Inc v Gouros [2023] NSWSC 1502 at ([4]ff.).
Mr Raffell submits that JDH should pay DCT's costs on the basis that JDH has achieved only a modest reduction in the amount of the Demand, by reason of the concession made by the DCT, referable to documents which JDH first produced at the hearing and that the DCT has been substantially successful in sustaining the Demand. He also points out that JDH's claim that the Demand was defective which was the first of two bases on which it sought to set aside the Demand, was, as I noted above, not pressed at the hearing and that, but for the fact that JDH was permitted to reopen and lead new evidence at the hearing on 16 February, it would likely have failed in the proceedings. He also submits that an order for costs in favour of the DCT is necessary to address the prejudice to which it has been exposed by the manner in which JDH conducted the proceedings, by putting the DCT in the position that it was required to address new evidence "on the run".
Mr Robertson submitted that the only controversy in these proceedings related to questions of PAYG tax, and that JDH should have its costs if it succeeded in whole (which it has not) or in significant part. I do not accept that submission where the variation of the Demand is the consequence of the new evidence first led by JDH at the hearing and the consequential concession that was properly made by the DCT that the Demand should be reduced.
I am comfortably satisfied that, although JDH has had success in reducing the claim against it to the extent conceded by the DCT, it should pay the costs of these proceedings, other than those dealt with by a costs order made on 16 February 2024. The Demand issued by the DCT was consistent with the information provided by JDH to the DCT; JDH would have failed in the proceedings, but for the opportunity provided it to reopen after it had closed its case; the DCT fairly accepted that the demand should be varied, promptly after JDH produced the documents which supported that result; and JDH then unsuccessfully maintained its claim to set aside the demand in its entirety or, possibly, vary it to a greater extent.

Orders

I therefore order that: 1 The creditor's statutory demand dated 26 September 2023 issued by the Defendant be varied by amending the amount of $3,404,812.73 claimed to $2,823,607.92 and the Plaintiff's Originating Process otherwise be dismissed. 2 The Plaintiff pay the costs thrown away by the adjournment to 22 February 2023 on an indemnity basis, quantified in the amount of $9,619.20. 3 The Plaintiff otherwise pay the Defendants' costs of those proceedings (other than those dealt with by order 2) on the ordinary basis as agreed or as assessed.

Amendments 27 February 2024 - Correction of misprints. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 February 2024

(2008) 39 Fam LR 323

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