Deputy Commissioner of Taxation v Sunraysia Harvesting Contractors [2016] VSC 736

1 In this proceeding the Deputy Commissioner of Taxation (DCT) claims a Running Balance Account (RBA) deficit debt pursuant to Part 11B of the Taxation Administration Act 1953 (Cth) (TAA).

1) First, the DCT seeks leave to amend his statement of claim to reduce the RBA deficit debt because of the removal of the primary debt described as "PAYG penalties," below (which debt will be allocated to a different RBA).[1]

2) Second, Sunraysia Harvesting Contractors Pty Ltd (Sunraysia) seeks orders that this proceeding be transferred to the Federal Court of Australia pursuant to s 5(1) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic). Further, that similar orders be made in two other proceedings brought by the DCT against Ms Hulya Erdogan (S CI 2015 01731), and Mr Suleyman Erdogan (S CI 2015 01864).[2]

3 The parties have agreed that the outcome of the two other proceedings should follow the outcome of the application in this "Sunraysia" proceeding.

4 The applications are also inter-related since Sunraysia submits that the application for amendment should not be decided in this Court at all, but should be cross-vested for the consideration of the Federal Court. This submission will be considered below when considering whether application to amend should be given.

5 The primary tax debts[3] allocated to the RBA the subject of this proceeding (as at 25 March 2015) were as follows:

a) Assessed net amounts pursuant to s 33-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) totalling $693,659.00 for tax periods in the 2012, 2013 and 2014 financial years (GST net amounts);

b) Assessed administrative penalties pursuant to sub-s 284-75(1) and s 298-15 of Schedule 1 to the TAA totalling $623,979.00 for tax periods in the 2012, 2013 and 2014 financial years (statement penalties); and

c) Penalties imposed pursuant to s 16-30 of Schedule 1 to the TAA for failure to withhold amounts as required by Division 12 of that Schedule (s 12-35 or s 12-60) for tax periods in the 2012, 2013 and 2014 financial years totalling $1,589,577.00 (PAYG penalties).

6 The GST and statement penalties are subject to conclusive evidence provisions under s 350-15 of Schedule 1 to the TAA. By way of contrast, the PAYG penalties are provable only under prima facie evidence provisions. It follows that the litigation of the PAYG penalties issue could involve viva voce evidence on factual issues relevant to the claim.

7 In the defence served in this proceeding the defendant did "not admit" the RBA deficit debt but otherwise generally denied the plaintiff's claim for relief.[4]

8 Directions hearings have been held in this matter. However, they have generally been adjourned pending the outcome of the Federal Court proceeding.

9 On 20 October 2014, the defendant applied to the Administrative Appeals Tribunal (AAT) for review of the Commissioner's decision on the defendant's objection against: (1) assessment of the GST net amounts; (2) assessments of the statement penalties; and (3) the refusal to remit the PAYG penalties.

10 On 30 September 2015, the AAT affirmed the Commissioner's decision to disallow the defendant's objection. In so doing the AAT upheld the position of the Commissioner that Sunraysia had entered arrangements with three companies (for those companies to engage employees) which were a "sham".

11 On 2 March 2016, the defendant appealed to the Federal Court from the AAT on a question or questions of law.

12 At the commencement of the hearing of the Federal Court appeal on 18 July 2016, the defendant applied to amend its notice of appeal. The proposed amendment included a new ground: that the AAT erred in its application of ss 12-35 and 12-60 in Schedule 1 to the TAA to the facts as found. This new ground relates to the PAYG penalties.

13 There was a question as to whether the ground was raised in the defendant's objection. Logan J made orders adjourning the appeal until 9 December 2016. His Honour also made orders for the filing of notices of a Constitutional matter under s 78B of the Judiciary Act 1903 (Cth).

14 The position of both parties is that a determination as to the liability of PAYG penalties was properly before the AAT and that the Federal Court thereby has jurisdiction. However, the matter of jurisdiction is not a matter for consent, but is ultimately a matter for the Federal Court.

15 In submissions filed on 9 September 2016, the defendant sought to rely on three submissions in support of the proposed amendment:

1) that the matter was properly before the AAT;

2) that the Federal Court had implied power to give leave to amend (which raises Constitutional issues); and

3) that this Court is already seized of the issue of the correctness of the PAYG penalty issue.

16 On 14 October 2016, the matter was again brought on before Logan J. During the course of this hearing the Sunraysia parties foreshadowed the making of a cross-vesting application of this proceeding. In the course of exchange with Counsel, Logan J made reference to an overlap in issues between the Federal Court and this Court and generally expressed a readiness to receive this proceeding into his docket in the event that the matter was cross-vested.

17 The hearing of the appeal and of the defendant's application for amendment of its notice of appeal otherwise remains listed for 9 December 2016.

18 The proposed amendments to the statement of claim are set out in the draft amended statement of claim exhibited as "DL1" to the affidavit of Darren Lane sworn 14 September 2016. In substance, the proposed amendments reduce the amount of the RBA deficit debt from $3,210,081.25 to $1,705,555.81 by the deletion of the PAYG penalties. The intention of the DCT is to allocate the PAYG penalties to another RBA established in respect of primary debts due by the defendant not the subject of this proceeding.

19 Notwithstanding the fact that the amendment seeks to reduce the claim, the application is opposed.

20 The reasons for the opposition are essentially two-fold as follows:

1. that the application should be adjourned for determination by the Federal Court following the making of a cross-vesting order;

2. that the defendant challenges the ability of the Commissioner to re-allocate the PAYG penalties to another RBA ( as he has foreshadowed).

21 In relation to the first point, Sunraysia submitted that the Federal Court should be seized of this proceeding (including the application to amend). Sunraysia emphasised that it wanted to ensure that a determination on the PAYG liability question was properly before a court such that there was some certainty in its tax position. It further highlighted that the matter would not "go away" on the approach of the DCT given that it was still open for Sunraysia to seek relief under s 39B of the Judiciary Act 1903 (Cth) or to make an application for declaratory relief in this Court.[5]

22 Sunraysia further claimed that the options are unsatisfactory on the DCT approach (not to cross-vest). Thus, if the Federal Court ultimately has jurisdiction to decide the correctness of the PAYG penalties it would be inappropriate for both courts to be seized of the same issue. Alternatively, if the Federal Court does not have jurisdiction, it would follow that neither court would be seized of the issue if the amendment was granted.

23 In relation to the second point, Sunraysia ultimately did not challenge the amendment on the basis that the DCT has no power to reduce its claim.[6] However, it maintained that there was no obvious source of power to re-allocate the PAYG penalties to another RBA, particularly in circumstances where the debt was already sued upon.

24 Dealing with the first submission (to the effect that I should defer consideration), I do not consider that I should avoid the making of a decision on the application for an amendment by transferring it to the Federal Court. To the contrary, as will be seen below, this Court is to take a "nuts and bolts" approach in deciding whether to cross-vest. It is appropriate in such circumstances that the pleadings be finalised insofar as this is possible before any decision as to cross-vesting should be made.

25 The suggestion that Sunraysia might in future seek other relief also cannot justify this court effectively forcing a litigant to make a claim. This is particularly so in circumstances where Sunraysia appears to be insolvent. [7] In any event, the need for further litigation appears questionable given the statement of Counsel on behalf of the DCT that, although the debt will still be recorded "on the books", the plaintiff will not in future sue for recovery of the PAYG penalties in any court.[8]

26 Dealing next with the suggestion that the DCT approach is unsatisfactory, if the Federal Court has jurisdiction and the amendment was to be allowed, there would be no relevant overlap on the PAYG penalty. Even if, on the other hand, the Federal Court ultimately does not have jurisdiction, this does not provide any justification for compelling the DCT to pursue a tax recovery claim for a debt in this Court.

27 The fact that the retention of the claim might suit a submission raised in the Federal Court, above, is also insufficient reason to compel the DCT to pursue the claim in this court.

28 In relation to the second matter, given Sunraysia did not challenge the power of the DCT to reduce its claim it effectively acknowledges a power to reduce the total RBA deficit debt otherwise owing. This is appropriate since the removal of the PAYG penalties from the relevant RBA the subject of this proceeding means that the RBA deficit debt itself is reduced (which is a debt in its own right[9]). The Commissioner is therefore not suing for only part of a debt, but is choosing to sue for a debt of a lesser value.

29 The DCT should be entitled to so choose and should not be bound to pursue an uneconomic claim. There is also specific legislation to the effect that a "non-corporate Commonwealth entity," which includes the Commissioner, is not required to pursue a claim that he considers to be not economical.[10]

30 It is strictly speaking, unnecessary to go further, since the only application being made to this court is an application to amend to reduce an amount claimed on the basis of a reduced RBA deficit debt. Thus, although the DCT has advised of an intention to re-allocate the relevant constituent primary debt to another RBA, no order is currently sought to permit this to occur.

31 However, given further submissions were received on this matter (on 2 December 2016) I will briefly express my views.

32 Pursuant to s 8AAZD(1) of the TAA, the Commissioner may allocate a primary debt to an RBA that has been established for that type of tax debt. Pursuant to s8AAZD(1A) if two or more RBAs for an entity have been established for a particular type of primary tax debt, the Commissioner "may allocate the debt to any one of those RBAs, or between any 2 or more of those RBAs, in the manner the Commissioner determines" (emphasis added).

33 In Commissioner of Taxation v 4 Doonan Street Collinsville Pty Ltd (in liq) the New South Wales Court of Appeal stated that sub-s (1A) confirms that more than one RBA may exist for primary tax debts of the same kind in which case "the Commissioner has a broad power to allocate the debt amongst those RBAs".[11]

34 Although this passage does not explicitly deal with a power to "reallocate", the authorities on RBA generally emphasise the permissive and facultative RBA system which is designed to facilitate the collection of taxes.[12]

35 That system would be undermined if the Commissioner was unable to transfer debts between RBAs.

36 In such circumstances I consider that the Commissioner has power to re-allocate pursuant to s 8AAZD(1A). Such a construction is also supported by s 33(1) of the Acts Interpretation Act 1901 (Cth), which provides (subject to any contrary intention (under s 2)) that where an Act confers a power then the power may be exercised "from time to time as occasion requires".

37 In the current context, there is no contrary intention given the authorities cited already which suggest that the provisions are permissive and broad.

38 I therefore consider that the power to allocate could be exercised so as to allocate the PAYG penalties to another RBA. Moreover, given the facultative context of Part 11B, that such power might be exercised even where it involves the movement of that debt from a pre-existing RBA.

39 It is appropriate to consider the application to amend on its merits prior to any determination of the cross-vesting application so as to determine the appropriate parameters of this dispute.

40 It is further inappropriate to force the DCT to litigate an uneconomic claim merely to keep the issue "alive" between the parties.

41 I am further satisfied that the DCT may reduce its claim. Although unnecessary to say further, I am also satisfied that the DCT might re-allocate the PAYG penalties to another RBA.

42 The plaintiff's proposed amendment is otherwise consistent with the overarching purpose and obligations in the Civil Procedure Act 2010 (Vic). Thus, the removal of the PAYG component should significantly reduce the scope of the dispute given the remaining claims are provable by reason of the conclusive evidence provisions. An order to amend thereby ensures the just, efficient, and timely resolution of this proceeding.[13]

43 In all the circumstances, I am therefore satisfied that the application to amend should be granted.

44 Pursuant to s 5(1) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic):

1. Where:
   1. a proceeding (in this subsection referred to as the relevant proceeding) is pending in the Supreme Court; and
   2. it appears to the Supreme Court that:

1. whether, in the opinion of the Supreme Court, apart from any law of the Commonwealth or another State relating to cross-vesting of jurisdiction and apart from any accrued jurisdiction of the Federal Court or the Family Court, the relevant proceeding or a substantial part of the relevant proceeding would have been incapable of being instituted in the Supreme Court and capable of being instituted in the Federal Court or the Family Court; 2. the extent to which, in the opinion of the Supreme Court, the matters for determination in the relevant proceeding are matters arising under or involving questions as to the application, interpretation or validity of a law of the Commonwealth and not within the jurisdiction of the Supreme Court apart from this Act and any law of the Commonwealth or another State relating to cross-vesting of jurisdiction; and

it is more appropriate that the relevant proceeding be determined by the Federal Court or the Family Court, as the case may be-

the Supreme Court shall transfer the relevant proceeding to the Federal Court or the Family Court, as the case may be.

45 The High Court of Australia has considered the application of similar provisions (in the NSW and SA cross-vesting legislation) in BHP Billiton Limited v Schultz & Ors.[14]

46 In Irwin v State of Queensland,[15] Robson J helpfully summarised the relevant principles derived from this case. I do not propose to recite each principle given the somewhat unique nature of this application. However, they relevantly include:

1. It is not necessary that it should appear that the first court is a "clearly inappropriate" forum. It is both necessary and sufficient that it appears that, in the interests of justice, the second court is more appropriate than the first court.

1. The Court is not concerned with the problem of a court, with a prima facie duty to exercise a jurisdiction that has been regularly invoked, asking whether it is justified in refusing to perform that duty. Rather, the Court is required by statute to ensure that cases are heard in the forum dictated by the interests of justice.

1. The interests of justice are not the same as the interests of one party, and there may be interests wider than those of either party to be considered. Even so the interests of the respective parties, which might in some respects be common (as for example cost and efficiency) and in other respects conflicting, arise for consideration.

1. The power to exercise the jurisdiction is not a discretionary power but a mandatory obligation. No question of discretion arises.

1. It is inapt to speak of an applicant for an order for transfer as bearing a burden of persuasion analogous to an onus of proof. Rather the jurisdiction must be exercised when "it appears" to the court that "it is in the interests of justice" that the proceeding be determined in the Supreme Court of another State or Territory rather than the court of where the proceeding has been issued. Unless it so appears, the court does not have power under the Act to transfer the proceedings. To that extent it may be said that an applicant assumes some onus of persuasion.

1. The court should adopt what has been described as a "nuts and bolts" management decision as to which court, in the pursuit of the interests of justice, is more appropriate to hear and determine the substantive dispute.

1. The appropriate court is the natural forum as determined by connecting factors to that forum.

47 Sunraysia ultimately conceded that there was no technical need to cross-vest this proceeding if the application to amend was granted,[16] given the rationale for the cross-vesting application focused on the PAYG penalty issue.

48 In such circumstances, given my finding above, the application can be disposed of relatively briefly.

49 The provisions of ss 5(1)(b)(ii) A and B[17] above do not apply. Thus, this proceeding is capable of being heard in this Court apart from any law relating to cross-vesting by virtue of s 39(2) of the Judiciary Act 1903 (Cth) which invests this Court with federal jurisdiction.

50 It is next necessary to turn to the question of the "interests of justice" under s 5(1)(b)(ii) C. However, consistent with the concession of Sunraysia, the rationale for cross-vesting disappears given the amendment. Although there may otherwise have been concerns about an undesirable overlap (as Logan J observed),[18] such concerns are largely removed given the two courts will no longer be concerned with the critical PAYG penalty issue.

• although some overlap still continues, the remaining matters in this court are straightforward debt recovery matters the subject of conclusive evidence provisions with no issues of substantive tax law involved;

• the application for transfer was only issued very recently, on 9 November 2016, in circumstances where the Federal Court appeal is listed for hearing on 9 December 2016. The making of a transfer application in such circumstances has the potential to bring about further delay (warranting also a further directions hearing on transfer);

• there appears to be no basis for transfer on the basis of "connecting factors" (and none was suggested); the defendant's registered office and place of business is in Melbourne.

52 Overall then, it is not more appropriate for the Federal Court to hear this proceeding in the interest of justice, which proceeding is now (post-amendment) an ordinary tax recovery proceeding.

53 The DCT's application to file and serve an Amended Statement of Claim will be granted.

54 The defendants' applications to cross-vest will be dismissed.

55 I will hear from the parties as to the precise form of final order.

[1] Plaintiff's Summons, filed 15 September 2016.

[2] Defendants' summonses, filed 9 November 2016 in each proceeding.

[3] A primary tax debt generally includes any amount due to the Commonwealth directly under a taxation law (see s8AAZA definitions)

[4] Defendant's Defence, filed 12 June 2015.

[5] Although jurisdiction in relation to this latter was challenged by the DCT.

[6] Transcript of Proceedings (1 December 2016) 57-8.

[7] See Affidavit of Konrad Wojtaski of 5 February 2016, [11], [14], [16].

[8] See Transcript of Proceedings (1 December 2016) 8-9, 30; although the DCT also reserved the right to prove in any insolvency and to issue a statutory demand.

[9] Pursuant to s 8AAZH if there is an RBA deficit debt at the end of a day, the tax debtor is liable to pay that total amount to the Commonwealth.

[10] Public Governance, Performance and Accountability Rule 2014 (Cth) s 11. See also Public Governance, Performance and Accountability Act 2013 (Cth) ss 11(b), 10(c) and 8 (definition of "listed entity"); Public Governance Performance and Accountability Rule 2014 (Cth) Schedule 1, item 7(a)(i), 7(b), 7(c).

[11] (2016) 309 FLR 166, [44] (Gleeson and Leeming JJA and Sackville AJA).

[12] H'Var Steel Services Pty Ltd v Deputy Commissioner of Taxation [2005] WASCA 71; (2005) 59 ATR 5, [17]; Cumins v Deputy Commissioner of Taxation (2007) 68 ATR 39, [44]; Commissioner of Taxation v 4 Doonan Street Collinsville Pty Ltd (in liq) (2016) 309 FLR 166, [43]-[44].

[13] Civil Procedure Act 2010 (Vic) s 7 provides that the overarching purpose of this Act and the rules of court in relation to civil proceedings is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute. See also, in particular, sub-ss 9(1)(a), (c), (d), (e) and (f).

[14] [2004] HCA 61; (2004) 221 CLR 400.

[15] [2011] VSC 291, [14].

[16] Transcript of Proceedings (1 December 2016) 47.

[17] An earlier submission to the contrary in relation to sub-paragraph B was abandoned in oral submission by Sunraysia: Transcript of Proceedings (1 December 2016) 15.

[18] As was present, for example, in the case of DFCT v Richard Walter Pty Ltd (1993) 25 ATR 498 cited by Sunraysia where there was a direct overlap between the issues in two courts, i.e. whether the assessments were void.