First Plaintiff Second Plaintiff v First Defendant Second Defendant Third Defendant

First Plaintiff Second Plaintiff v First Defendant Second Defendant Third Defendant - [2011] VSC 476 - VSC 2011 case summary — Zoe

[15]

"16.4 Tax audits

(a) The Vendors will give to the Purchaser all reasonable assistance, at the Vendors' cost, in connection with any Tax audit of a Group Entity after the Completion Date in respect of any period before the Completion Date.

(b) The Purchaser will (and will procure each Group Entity to) promptly notify the Vendors of any proposed Tax audit of a Group Entity which may include any period before the Completion Date.

...

(f) The Purchaser must take any proper and reasonable action that the Vendors request to avoid, resist, compromise or defend a demand or notice issued by a Taxation Authority which gives rise to the Tax Claim.

(g) The Vendors may request a Group Entity (at the entire cost of the Vendors) to appeal or object to a Tax Claim provided that all other avenues of review have been exhausted.

(h) Any action required under this clause 16.4 must be taken in a timely manner.

16.5 Tax refunds

(a) Subject to clause 16.3, the Vendors will be responsible for any amount of Tax payable by a Group Entity in respect of the period up to and including the Completion Date.

(b) Subject to clause 16.3, the Purchaser will be responsible for any amount of Tax payable by a Group Entity in respect of the period from the Completion Date, excluding any Tax payable by Tasman in respect of the Disputed Assessments.

(c) Subject to cause 16.3, the Purchaser must pay to the Vendors, or procure the Group Entity to pay to the Vendors, an amount equal to any Tax refund, offset, rebate, reimbursement or credit allowed or received from a Taxation Authority in respect of any Tax or duty (including interest) paid by the Group Entity in respect of the period up to and including the Accounts Date immediately upon receipt by the Purchaser of such amounts, including any amount allowed or received from a Taxation Authority in respect of the Disputed Assessments.

(d) Any amount paid by the Purchaser to the Vendors under this clause 16.5 will be in addition to and an increase in the Purchase Price.

(e) Subject to clause 16.3, the Vendors will be liable for and will pay to the Purchaser on demand any additional tax assessed and audit costs incurred by a Group Entity in respect of the period up to and including the Completion Date."

[32]

10. The vendor's warranties with respect to the company's taxation obligations are contained in clause 16 of Schedule 1 of the SUSA. It is common ground that the vendors are required to indemnify the companies with respect to the subject matter of the assessments. The only dispute between the parties is, having regard to the construction of the agreement as a whole, whether the obligations of the vendors under clause 12.7(a) is triggered by the issuing of the assessments by the ATO in circumstances where there is evidence that it is not uncommon for tax payers seeking to dispute adverse assessments by the ATO to not pay the disputed amount either in full or in part, but rather take the risk of being subject to incurring additional interest and penalties rather than pay the disputed amounts. In an affidavit affirmed on 12 July 2011, the solicitor for the vendors deposes that, in his experience, payment of the full amount of the disputed assessment could jeopardise the vendors' interests by reducing the incentive for the ATO to negotiate with the vendors and/or determine the objections promptly.
11. The companies assert that this is an appropriate case for summary judgment in that the matters raised by the defendants in their affidavits and submissions do not raise a real question to be tried (within the meaning of the authorities applicable to summary judgment prior to the introduction of the Civil Procedure Act 2010) ('Act') or, alternatively, that these matters have no real prospect of success within the meaning of s. 63 of the Act.
12. The recent authorities regarding the applicable test for summary judgment[2] make it apparent that the test for summary judgment is less stringent than in the past, particularly in the light of the overarching purpose of the Act set out section 7(1) of the Act, being the 'just, efficient, timely and cost-effective resolution of the real issues in dispute' between the parties. In cases where the sole issue is the proper construction of the contract (as in this case) summary judgment should only be refused if there is a fair dispute about the meaning of the document.
13. In my view, there is no significant dispute between the parties as to the applicable test. The issue is whether the construction of clauses 14.7 contended for by the vendors has a real, and not fanciful, prospect of success. I accept the submissions made by counsel for the vendors that the terms of clause 14.1(b) of the SUSA (which 'caps' the liability of the vendors for any breach of warranty to $20,000,000) is not relevant to the question of whether summary judgment ought to be granted. The fact that the amount the companies are liable to pay the ATO under the assessments will reach the cap of $20 million by the end of the year is a practical concern for the companies, but does not strengthen their claim for summary judgment.
14. In my view, the construction of the term 'may be called upon to pay' contended for by the vendors is arguable, but does not have a real prospect of success."

[91]

"The critical words of s 31A(1), when applied to the present case, require me to be satisfied that the respondents have '... no reasonable prospect of successfully defending the proceeding ...'. The following principles may be extracted from the authorities:

(a) The moving party does not have to demonstrate that the defence is hopeless or unarguable;

(b) The Court must consider the pleadings and the evidence with a 'critical eye' in order to see whether the respondent party has evidence of sufficient quality and weight to be able to succeed at trial (Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd [2008] FCAFC 60; (2008) 167 FCR 372 at [23] (p 382) (per Finkelstein J));

(c) The respondent party is not obliged to present its whole case in order to defeat the summary judgment applicant but must at least present a sufficient outline of the evidence in order to enable the Court to come to a preliminary view about the merits for the purpose of considering the statutory test in s 31A(1)(b) (Jefferson Ford Pty Ltd [2008] FCAFC 60; 167 FCR 372 at [22] (p 382) (per Finkelstein J)); and

(d) The test may require greater scrutiny of the pleadings and evidence in some cases than in others. In my judgment, the words of s 31A(1) compel a flexible approach. The real question in every case is not so much whether there is any issue that could arguably go to trial but rather whether there is any issue that should be permitted to go to trial. This seems to be the approach of Finkelstein J in Jefferson Ford Pty Ltd [2008] FCAFC 60; 167 FCR 372 and of Gordon J in the same case (as to which see [123]-[134] (pp 406-409)), although Rares J in that case at [73]-[74] (p 394) and in Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd [2006] FCA 1352; (2006) 236 ALR 720 esp at [45] (p 731) favoured a test which is much closer to the older test articulated in authorities decided under Rules of Court expressed in terms different from the language of s 31A(1))."

[103]

"[51] First, the central idea about which the provisions pivot is 'no reasonable prospect' (emphasis added). The choice of the word 'reasonable' is important. If s 31A is to be seen as deriving from r 24.2 of the Civil Procedure Rules 1998 of England and Wales, its provisions underwent an important change in the course of their translation from that jurisdiction to this. The English rule speaks of 'no real prospect'; s 31A speaks of 'no reasonable prospect'. The two phrases convey very different meanings.

[52] Second, effect must be given to the negative admonition in subs (3) that a defence, a proceeding, or a part of a proceeding may be found to have no reasonable prospect of successful prosecution even if it cannot be said that it is 'hopeless' or 'bound to fail'. It will be necessary to examine further the notion of 'no reasonable prospect'. But before undertaking that task, it is important to begin by recognising that the combined effect of sub-ss (2) and (3) is that the enquiry required in this case is whether there is a 'reasonable' prospect of prosecuting the proceeding, not an enquiry directed to whether a certain and concluded determination could be made that the proceeding would necessarily fail.

[53] In this respect, s 31A departs radically from the basis upon which earlier forms of provision permitting the entry of summary judgment have been understood and administered. Those earlier provisions were understood as requiring formation of a certain and concluded determination that a proceeding would necessarily fail.

...

[56] Because s 31A(3) provides that certainty of failure ('hopeless' or 'bound to fail') need not be demonstrated in order to show that a plaintiff has no reasonable prospect of prosecuting an action, it is evident that s 31A is to be understood as requiring a different enquiry from that which had to be made under earlier procedural regimes. It follows, of course, that it is dangerous to seek to elucidate the meaning of the statutory expression 'no reasonable prospect of successfully prosecuting the proceeding' by reference to what is said in those earlier cases."

Parties

Applicant/Plaintiff:

Second Plaintiff

Respondent/Defendant:

WESTCITY GROUP HOLDINGS PTY LTD

Legislation Cited (88)

Court (General Civil Procedure) Rules 2005

Procedure Act 2010

Tax Assessment Act 1997

Tax Administration Act 1953

Court Act 1986

Court Act 1958

Actions Act 1958

Arbitration Act 1985

Legislation Act 1984

Court of Australia Act 1976

Civil Procedure Rules 1998

Court (General Civil Procedure) Rules 2005

Procedure Act 2010

Tax Assessment Act 1997

Tax Administration Act 1953

Court Act 1986

Court Act 1958

Actions Act 1958

Arbitration Act 1985

Legislation Act 1984

Court of Australia Act 1976

Civil Procedure Rules 1998

Court (General Civil Procedure) Rules 2005

Procedure Act 2010

Tax Assessment Act 1997

Tax Administration Act 1953

Court Act 1986

Court Act 1958

Actions Act 1958

Arbitration Act 1985

Legislation Act 1984

Court of Australia Act 1976

Civil Procedure Rules 1998

Court (General Civil Procedure) Rules 2005

Procedure Act 2010

Tax Assessment Act 1997

Tax Administration Act 1953

Court Act 1986

Court Act 1958

Actions Act 1958

Arbitration Act 1985

Legislation Act 1984

Court of Australia Act 1976

Civil Procedure Rules 1998

Court (General Civil Procedure) Rules 2005

Procedure Act 2010

Tax Assessment Act 1997

Tax Administration Act 1953

Court Act 1986

Court Act 1958

Actions Act 1958

Arbitration Act 1985

Legislation Act 1984

Court of Australia Act 1976

Civil Procedure Rules 1998

Court (General Civil Procedure) Rules 2005

Procedure Act 2010

Tax Assessment Act 1997

Tax Administration Act 1953

Court Act 1986

Court Act 1958

Actions Act 1958

Court (General Civil Procedure) Rules 2005

Procedure Act 2010

Tax Assessment Act 1997

Tax Administration Act 1953

Court Act 1986

Court Act 1958

Actions Act 1958

Arbitration Act 1985

Legislation Act 1984

Court of Australia Act 1976

Civil Procedure Rules 1998

Court (General Civil Procedure) Rules 2005

Procedure Act 2010

Tax Assessment Act 1997

Tax Administration Act 1953

Court Act 1986

Court Act 1958

Actions Act 1958

Arbitration Act 1985

Legislation Act 1984

Court of Australia Act 1976

Civil Procedure Rules 1998

Arbitration Act 1985

Legislation Act 1984

Court of Australia Act 1976

Civil Procedure Rules 1998

Cases Cited (29)

(2002) 209 CLR 478

(1985) 3 NSWLR 728

(2007) 240 ALR 624

(2008) 167 FCR 372

(2006) 236 ALR 720

(2010) 241 CLR 118

(2003) 203 ALR 1

At a glance

Court

Decision date

Before

Source

Judgment (228 paragraphs)

Parties

Legislation Cited (88)

Cases Cited (29)