Burwood Retail Pty Ltd v Deputy Commissioner of Taxation; Scandi

5. There is also a threshold point, which the solicitor for the appellants recognised and argued, as to whether the time for compliance with the demands had expired, with the consequence that the appeals should fail.

8. The plaintiffs are Burwood Retail Pty Ltd ("Burwood") and Scandi (QLD) Pty Ltd ("Scandi"). The statutory demands, each dated 30 November 2001, were served on Burwood on 3 December 2001 and on Scandi on 4 December 2001. Each demand claimed amounts owing for PAYE deductions, interest and penalties. In Burwood's case the unpaid PAYE deductions were made between 1 October 1998 and 31 March 2000. In Scandi's case the relevant period is 1 June 1998 to 31 March 1999. Burwood is alleged to owe a total amount of $19,119.25, and Scandi is alleged to owe $14,810.43.

11. On 24 December 2001 each taxpayer filed an application to set aside the statutory demand served on it. That was within the period of 21 days specified in s 459G of the Corporations Act as the time within which an application to set aside a statutory demand must be made. Each application was supported by an affidavit sworn by Anthony David Guss, who is a director of each company.

14. In each case, on 25 February 2002, the Commissioner filed an answering affidavit sworn by an officer of the Australian Taxation office, Aris Zafiriou.

17. The applications first came on for hearing before the Senior Master on 27 February 2002. The hearing was adjourned to 2 May 2002 with directions for the filing of further affidavits. As it transpired, no further affidavits were filed and, after some further adjournments, the Senior Master heard, and determined, the applications on 13 June 2002. In Burwood, the Senior Master ordered that the application be dismissed with costs. In Scandi, he ordered that the statutory demand be varied by reducing the sum demanded to $14,479.33, he declared that the demand had effect as varied from the date of its service, and he made an order for costs. The authenticated order in Scandi does not state that the application was dismissed but it is accepted that the order had that effect. It is obvious that the Senior Master intended to dismiss the application.

20. On 19 June 2002 each plaintiff filed a notice of appeal against the Senior Master's orders. Contrary to the Commissioner's submission, the notices were filed within the time required by the Rules of the Supreme Court. The notices were filed in time because the period of five days stipulated in Rule 77.05(4) as the time within which a notice of appeal must be filed (subject to an order extending that time) does not include a day on which the office of the Court is closed.[1] As the weekend intervened between the making of the order on Thursday 13 June 2002 and the filing of the notices on Wednesday 19 June 2002, the filing was effected on the fourth day after the order was made.

23. When the Senior Master dismissed the applications he did not make an order under s 459F(2)(a)(i) extending the time for compliance with the statutory demands. Consequently, if the orders of the Senior Master "finally determined" the applications, the period for compliance with the statutory demands would expire seven days after the orders were made on 13 June 2002.[2]

26. On 19 June 2002 Burwood and Scandi filed an interlocutory process for an order under s 459F(2)(a)(i) that the time for compliance with the statutory demand be extended until seven days after the hearing and determination of the appeal against the Senior Master's orders. The applications were heard by Byrne J in the Practice Court on the following day, 20 June 2002. In the affidavits in support of each interlocutory process Mr Guss explained the reason for the applications. If the time for compliance with the statutory demand was not extended the applicants feared that the Commissioner would file and serve an application for the winding up of the companies based on their failure to comply with the statutory demand within the time specified in s 459F(2), and that the appeal might be rendered nugatory.

29. Byrne J refused the applications. In short reasons, Byrne J stated that he had been informed that there was some uncertainty as to whether the effect of s 459F(2) was to automatically extend the time for compliance with the statutory demand, on the basis that the application to set aside a demand is not finally decided until the appeal is determined. Byrne J expressed no view on the point. He proceeded on the basis that the time for compliance was running and would expire that day. Considering the matter in that context, he nevertheless exercised his discretion against the applications. The alleged debt and the demands were "old" and the scheme of Part 5.4 of the Corporations Act is for a speedy winding up of debtor companies. Finally, Byrne J expressed a view, obiter, as to the effect of the statutory demand on any winding up application, or order, if the appeals turned out to be well founded. There was no appeal from Byrne J's orders refusing the applications.

32. I was informed that the Commissioner has filed an originating process seeking the winding up of Burwood and Scandi. I understand that the hearing of the winding-up applications is being held over pending the determination of these appeals.

35. The statutory demand provisions are contained in the Corporations Act in Part 5.4 - Winding Up In Insolvency. Section 459E provides that a statutory demand relating to a debt must be served on a company, and that it must specify the debt and its amount, and require the company to pay the debt, or to secure or compound the debt to the creditor's reasonable satisfaction within 21 days after the demand is served.

38. Section 459F defines when a company is taken to have failed to comply with a statutory demand. It provides:-

"459F(1) [Where company fails to comply] If, as at the end of the period for compliance with a statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to fail to comply with the demand at the end of that period. 459F(2) [Period for compliance] The period for compliance with a statutory demand is: (a) if the company applies in accordance with section 459G for an order setting aside the demand: (i) if, on hearing the application under section 459G, or on an application by the company under this paragraph, the Court makes an order that extends the period for compliance with the demand - the period specified in the order or in the last such order, as the case requires, as the period for such compliance; or (ii) otherwise - the period beginning on the day when the demand is served and ending 7 days after the application under section 459G is finally determined or otherwise disposed of; or (b) otherwise - 21 days after the demand is served."

42. Under this provision, if, at the end of the period of 21 days referred to in s 459E "the demand is still in effect and the company has not complied with it, the company is taken to fail to comply with the demand at the end of that period". That founds the presumption of insolvency which s 459C(2) provides for the purpose of a winding up in insolvency.

45. To cover the cases in which the debt is disputed s 459G provides that a company may apply to the Court for an order setting aside a statutory demand. But sub-s (3) requires that the application be made within the 21 day period referred to in s 459E. The stringency of the time requirement is underlined by the requirement in sub-s (3) that the applicant not only file the application within 21 days but so too file an affidavit in support within that time. The application and supporting affidavit must also be served within the 21 day period.

48. Sections 459H and 459J provide grounds on which a demand may be set aside. Under s 459H(1), a demand may be set aside if there is a genuine dispute about the existence or amount of the debt, or if the company has an offsetting claim. Under s 459J(1) a demand may be set aside if there is a defect in the demand which would create a substantial injustice if it was not set aside, or if there is some other reason why it should be set aside. It is unnecessary to refer to the full terms of these provisions. One aspect to mention is the power of the Court under s 459H(4) to vary the amount in the demand and declare the demand to have effect as so varied. The Senior Master acted under this provision in the orders he made in the Scandi matter. Unless the Court makes an order under s 459H or s 459J, s 459L requires the Court to dismiss the application to set aside the demand.

51. Section 459K provides that a statutory demand has no effect while an order is in force under s 459H or s 459J setting aside the demand.

54. That, in outline, is the scheme. The effect is to have disputes as to the existence or amount of a debt dealt with prior to the hearing of an application to wind up a company. Another purpose is to have expedition in the winding up of insolvent companies. Hence, there is the presumption of insolvency in s 459C(2), there is the requirement in s 459R that an application to wind up in insolvency be determined within six months after it is made, and there is the provision that where the insolvency is based on a failure to comply with the statutory demand the company may not, without leave, oppose the application on a ground that the company relied on or could have relied on in an application to set aside the demand. Under s 459R(2) the period of six months can be extended by the Court, but only if special circumstances justify the extension and the order is made within the period of six months or prior to the date as last extended. There is a symmetry between that limitation on the power and s 459F(2)(a)(i), as judicially construed.

57. Following the enactment of these provisions, it was not long before the following three issues concerning the construction and application of the provisions were identified for determination in the courts.

(a) When an application to set aside a statutory demand is dismissed, is the application "finally determined or otherwise disposed of" within the meaning of s 459F(2)(a)(ii)?

(b) Can the power of the Court under s 459F(2)(a)(i) to extend the time for compliance with a statutory demand be exercised after the period for compliance has expired?

(c) Can an appeal from a decision dismissing an application to set aside a statutory demand be maintained if the period for compliance has expired?

63. Livestock Traders International Pty Ltd v BUI[3] provided an answer to these questions. The case concerned facts very similar to the present. It arose in the Federal Court of Australia. A Registrar dismissed an application to set aside a statutory demand, and extended the period for compliance with the demand for 14 days. After the expiration of that time an application for a review of the decision was filed, and subsequently came on for hearing before Jenkinson J with an application to further extend the time for compliance. Jenkinson J dismissed the application. When the Registrar dismissed the application the demand was "in effect" in the sense of s 459K (and see s 459F(1)). Jenkinson J considered that the application was "finally determined" notwithstanding that the order was reviewable, if made by a Registrar, or subject to appeal, if made by the Court. Then, critically, he held that while the power to extend the time for compliance could be exercised from time to time, it could not be exercised after the period had expired. As the extension ordered by the Registrar had expired there was no power under s 459F(2)(a)(i) to order a further extension. The consequence was that at the expiration of the extended time for compliance the demand was in force and the company had failed to comply with it. That being the case, the application to set aside the demand lacked "subject matter" and the review, and application to further extend the time for compliance, was dismissed.

66. Similarly, in the present cases the time for compliance expired seven days after the Senior Master made his orders, and neither company has complied with the demand served upon it.

69. In Graywinter Properties Ltd v Dyer[4] Ryan J concluded to the same effect as Jenkinson J. In Graywinter an order had been made extending the date for compliance with a statutory demand to a specified date. Subsequent to that date, the demand not having been complied with, the company applied for a further extension of the time in which to comply with the statutory demand. Ryan J dismissed the application. Once the time for compliance fixed by the Act or an order of the Court had expired, the presumption of insolvency in s 459C(2)(a) applied and there was no power to bring, revive or continue an application to set aside the statutory demand.[5]

72. A month later, in Graywinter Management Ltd v Deputy Commissioner of Taxation[6] Finn J followed these cases in holding that the power of the Court to extend the time for compliance can not be exercised after the expiration of that time. That conclusion was re-stated by the Full Court of the Federal Court in Equuscorp Pty Ltd v Perpetual Trustees WA Ltd.[7] The Full Court observed[8] that:

"Provided an application for an extension is brought before the expiry of the period fixed for compliance, that period can be further extended even if the s 459G application has been determined: Graywinter Management Pty Ltd v DCT; Graywinter Properties Pty Ltd v Dyer; Livestock Traders International Pty Ltd v Thi Lam Bui."

76. A few years later, in Buckland Properties Pty Ltd v Deputy Commissioner of Taxation,[9] Warren J followed and applied these decisions. The case before Warren J was an appeal from an order of the Senior Master dismissing an application to set aside a statutory demand. The Senior Master did not extend the time for compliance and no application for an extension was made within the period of seven days after the Senior Master made his orders. Nor was an extension subsequently sought. Her Honour observed, correctly with respect, that there was a line of authority for the principle that the commencement of an appeal against the dismissal of an application to set aside a demand did not operate as a stay or provide an extension of the time for compliance with the demand. On the basis of the above authorities Warren J concluded that, the time for compliance having expired, no extension could be granted, and dismissed the appeal.

79. With the exception of the applications to extend time refused by Byrne J, the facts in the present cases are the same as those in Buckland. There are orders refusing the applications to set aside the demands, there are no orders extending the period for compliance with the demands, and the appeals are heard subsequent to the expiration of the period of seven days after the orders made by the Senior Master.

82. It so happens that Mr Guss, who appeared before me for the appellant companies, also appeared for the appellant Buckland before Warren J. In her judgment Warren J refers[10] to a submission by Mr Guss that the words "finally determined" contemplate an appeal. On that basis, Mr Guss contended that the filing of a notice of appeal pursuant to Rule 77.05(4) meant that the application was not "finally determined" for the purpose of s 459F(2)(a)(ii) when it was before Warren J. In other words, no order extending the time for compliance was required, the filing of a notice of appeal was effective to achieve the same result. Warren J rejected the submission. The application under s 459G was, and remained, finally determined unless and until the appeal was allowed. However, as the time for compliance had expired, and no extension could then be granted, the appeal was misconceived, and was duly dismissed.

85. The decision was given on 16 August 2001. Buckland has appealed. The appeal remains pending in the Court of Appeal.

88. Mr Guss submitted in the present proceedings that Buckland was wrongly decided and that I should so hold on these appeals. He also submitted that if Warren J had "correctly interpreted" the decision in Livestock, the decision in Livestock was also wrong.

91. Mr Guss developed his submission in this way. He said that the Federal Court decisions were distinguishable because there were "differences" between the Rules of the Federal Court and of the Supreme Court "in so far as reviews and appeals are concerned". In the Supreme Court, an appeal from a Master is a hearing de novo.[11] He referred to s 35A(5) of the Federal Court of Australia Act 1976 (Cth) which made provision for a party to apply to the Federal Court to review an exercise of power by a Registrar, and O 71 r 7(3) of the Federal Court Rules which provides that such an application must be made within 21 days after the decision of the Registrar. The submission was not developed. There was no reference to any authoritative discussion concerning the nature of a hearing on a review of a Registrar's exercise of power. It was a submission by assertion, without development, that "the mechanism" provided in the Federal Court was "very different" from a hearing de novo in the Supreme Court. Lest there was uncertainty on the nature of an appeal by hearing de novo I was referred to the well-known statement of the Full Court of this Court in Southern Motors Pty Ltd v Australian Guarantee Corporation Ltd.[12] That was the first point in Mr Guss' submission.

94. The second point also relied on the appeal being a hearing de novo. The consequence of the appeal being of that nature is that once the notice of appeal is filed "the Master's decision is of no effect". The matter is to be regarded as though the hearing before the Master had not taken place and his decision had not been made. One was to approach the matter as though the determination of the Judge on appeal would be the initial determination of the application to set aside the statutory demands. On that basis the time for compliance had not expired under s 459F(2)(a)(ii).

97. The third point was that the expression "finally determined" in s 459F(2)(a)(ii) means and includes the time allowed to appeal and, if there is an appeal, the time to final determination of the appeal, and includes such time as one moves by appeal through the judicial hierarchy.

100. In making the fourth point, Mr Guss relied on the fact that the time for compliance with a statutory demand can be extended after the Court has dismissed an application to set aside a statutory demand. The point was based on the following sentence in the judgment of the Full Court of the Federal Court in Vista Commercial Construction Pty Ltd v Deputy Commissioner of Taxation[13]:

"However, there is no reason as a matter of language, or for that matter as a matter of policy, why an application could not be made at a time after the hearing, for example, after an appeal against a decision at first instance on the application to set aside the statutory demand had been decided adversely to an applicant."

Mr Guss described that statement as "completely different to what is said in Livestock". I note that he also referred to later passages in the judgment of the Full Court.

105. For these reasons Mr Guss submitted that the time for compliance had not expired. However, Mr Guss submitted in the alternative that if the time for compliance had expired, on the authority of Vista, the time can be extended and should be extended until the determination of the present appeals.

108. In my view these points, whether regarded individually or together, are without substance.

111. It is convenient to commence with the fourth point. It is clear that in discussing the power conferred on the Court by s 459F(2)(a)(i) to extend the time for compliance, the Full Court in Vista proceeded on the basis that the power had to be exercised before the time for compliance had expired.[14] This was consistent with the earlier decision in Livestock. The statement in Vista relied on by Mr Guss and quoted above must be considered in the overall context of the judgment. It is correct that the power to extend the period for compliance may be exercised after the determination of the application to set aside, but it is another thing altogether to suggest that it can be exercised after the expiration of the period of seven days in s 459F(2)(a)(ii) or such other period as might have been ordered under s 459F(2)(a)(i). It is clear that once the period for compliance has expired the Court does not have power to order that the period be extended. Vista is not in conflict with Livestock, it is consistent with it, as is Buckland.

114. The first point was premised on a so-called difference in the nature of the review or appeal process in the Federal Court and in this Court. In this Court the appeal from a Master is a hearing de novo, whereas in the Federal Court a review is not. At least that was what Mr Guss said. The submission rested on assertion, rather than an analysis of the nature of a review or appeal in the Federal Court. In fact the premise of the submission is false. It is well established that a review of an exercise of power by a Registrar under s 35A(6) of the Federal Court Act and O 71 r 7(3) and (4) of the Federal Court Rules is by hearing de novo.[15] That Livestock was a review was acknowledged by the Full Court in Vista.[16] Hence the nature of the review before Jenkinson J was the same as the appeal in the present cases. Graywinter and Equuscorp were not reviews of a Registrar's decision. Those decisions concerned, or arose out of, earlier orders of a Judge. None of the judgments rested on the nature of the hearing.

117. It follows that no relevant factor exists by which to distinguish the Federal Court decisions by reason of the fact that the present appeals arise in this Court on a hearing de novo. It is thus apparent that the first point is without substance.

120. I now deal with the second point. The point overlooks the fact that, unless set aside on appeal, a judgment or order of a Master stands and can be enforced. This is made clear by Rule 77.07(8) which provides that:

"Except so far as a Judge or the Master otherwise orders, an appeal shall not operate as a stay of execution or of proceedings under the judgment or order."

Neither the Rules nor the Corporations Act qualify this position in relation to appeals from the order of a Master (or a Judge) dismissing an application to set aside a statutory demand. Furthermore, as Jenkinson J observed in Livestock, the result of the order dismissing the application to set aside was that the demand was "in effect" and, it followed, the time for compliance was running. Thus, the need to obtain an extension of time from the Court. In essence, Mr Guss' submission relies on an assertion that by some sort of process inherent in an appeal de novo, the Senior Master's decision ceased to have effect, as though it had not been made, a nullity it would seem, by reason of the mere filing of the notice of appeal.

125. The third point concerns the proper construction of s 459F, in particular the expression "finally determined or otherwise disposed of", in para (ii) of sub-s (2)(a). At the very least, the submission is that when an appeal is instituted within time, an application under s 459G is not, and cannot be said to be, "finally determined or otherwise disposed of" until the appeal is heard and determined. In fact the submission went further than that. It went to this extent, that an application is not "finally determined or otherwise disposed of" until the time limited for appeal, or, if applicable, the time in which to apply for leave to appeal, has expired. If at that time no appeal has been instituted or leave granted, the appeal can be seen as "finally determined". This would apply throughout the appellate structure. A difficulty which this approach must confront is the question of how to cater for the circumstance of an application for leave to appeal out of time. The simple way may be to disregard the possibility. Yet it perhaps emphasises the difficulty of formulating a submission that fits within the policy and strict time limits in Part 5.4 of the Corporations Act concerning statutory demands and winding up insolvent companies.

128. In support of his submission, Mr Guss referred to Stroud's Judicial Dictionary of Words and Phrases,[17] concerning "final determination", "finally determine", "finally disposed of" and "finally establish". He also referred me to several cases which were concerned with the construction of such expressions.[18] He submitted that they showed that where appeals are permitted by statute, or subordinate legislation, or Rules of Court, an application is not "finally determined" until the appeal process is exhausted. The cases arose in different contexts and involved the construction or application of expressions in particular statutes or regulations. Contrary to the context of the present proceedings, none involved the legislative scheme concerning statutory demands and winding up in insolvency found in the Corporations Act. All of the decisions are distinguishable.

131. The present context concerns the statutory demand provisions in the Corporations Act. The proper construction and operation of these provisions, and the same provisions in the Corporations Law, have received careful analysis by Judges in this country. I agree, respectfully, with the line of authority that has been thus established. It is clearly established that an application to set aside a statutory demand is "finally determined or otherwise disposed of" within the meaning of that expression in s 459F(2)(a)(ii) when an order is made that the application be dismissed. The construction adopted reflects the policy behind, and purpose of, the statutory demand and winding up in insolvency provisions of the Corporations Act. It is not as though the unsuccessful applicant is left without recourse. The right to appeal remains, subject to any applicable statute or rule affecting or limiting the right or nature of the appeal, and the Court can extend the time for complying with the statutory demand. In this case the Rules provided a time limit of five days in which to appeal. Even if an appeal time could be taken into account before it could be said that an application was "finally determined", the period of five days was subsumed in the period of seven days provided in s 459F(2)(a)(ii). It is the scheme of the legislation that in the power to extend time lies the means to safeguard the position of the unsuccessful applicant pending the hearing and determination of an appeal. It is the exercise of that power which the appellants failed to achieve, and that being so the appeals must fail.

134. I should add that even if I was of the view (which I am not) that the reasoning in the authorities, including Buckland, was wrong in any relevant respect, it would not be open to me to decline to follow those authorities.[19] If there is to be a departure from a well-established line of authority concerning the construction and application of the Corporations Act it must come from a higher level in the judicial hierarchy. It is otherwise inappropriate to have a divergence of judicial views in the matter.

137. For these reasons, none of the submissions made by Mr Guss on behalf of the appellants are persuasive. The consequence is that as the time for compliance with the statutory demands has expired without the appellants having complied with them, and as no extension of the time for compliance is now possible, the objections to the validity of the demands do not now fall for consideration. As Jenkinson J described the situation in Livestock, the application has come to lack "subject matter".[20] Accordingly, the appeals are dismissed.

140. In these circumstances it is not necessary to consider the objections to the statutory demand, including disputation as to the debt, and the alleged defects in the demands and the affidavit in support. Given the circumstances of the proceedings, these issues do not arise for consideration. Accordingly, I express no view upon them.

143. I will hear the parties on the question of costs.

[4] (1997) 15 ACLC 302.

[6] (1996) 22 ACSR 636.

[7] (1997) 25 ACSR 675.

[9] [2001] VSC 286.

[12] [1980] VicRp 23; [1980] VR 187 at 190.

[13] (1997) 149 ALR 149 at 155.

[15] See Martin v Commonwealth Bank of Australia [2001] FCA 87.

[17] Greenberg & Millbrook, Stroud's Judicial Dictionary of Words and Phrases, Sweet & Maxwell, 6th ed (2000), pp 936.

[18] In re Doncaster Amalgamated Collieries Ltd [1956] 1 WLR 167 ("final determination" meant final completion of the review of compensation); Garland v Westminster (City) London Borough Council (1970) 68 LGR 587 ("final determination ... of an appeal is at latest when the time for appealing against an unsuccessful appeal has expired without a further appeal being instituted"); Re 20 Exchange Street Manchester; Austin Reed Ltd v Royal Insurance Co Ltd [1956] 3 All E R 490 (application for a new tenancy was "finally disposed of", following a decision of the Court of Appeal, on the expiration of the time limited for lodging a petition to the House of Lords for leave to appeal); Caledonian Railway Co v Davidson [1903] AC 22 (no "final determination" by arbitration).

[19] See Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 492.