Food Channel Network Pty Ltd v Television Food Network, GP

REASONS FOR JUDGMENT 1 On 22 March 2009, a judge of this Court gave judgment in trademark proceedings as between the plaintiff (creditor), Television Food Network, GP (Television Food Network), and the defendant (debtor), Food Channel Network Pty Ltd (Food Channel Network): see Television Food Network GP v Food Channel Network Pty Ltd (No 2) [2009] FCA 221. One of the orders made by the Court at that time provided for the payment of costs to be taxed. Those costs were taxed by a registrar. On 11 March 2010, following that taxation of costs, an order was entered pursuant to O 62 r 45(3) of the Federal Court Rules. That order recited: On 27 March 2009 the court ordered that the respondent, ie, Food Channel Network, pay the applicant's, ie, Television Food Network, costs of and incidental to the opposition before a hearing officer, Alison Windsor, as delegate of the Registrar of Trade Marks, and of this appeal. On 1 December 2009, following a taxation of costs held on 20 and 24 November 2009, the amount of the applicant's costs pursuant to the above order was allowed in the sum of $99,713.53 for which sum a certificate of taxation was issued on 12 February 2010. The court orders the respondent to pay the applicant the sum of $99,713.53. 2 Leave to appeal in respect of the judgment whereby, materially, the payment of costs to be taxed was ordered has been given: see Food Channel Network Pty Ltd v Television Food Network, GP [2009] FCA 1445. 3 On 4 March 2010 an application was made for a stay of that primary judgment. That application was refused: see Food Channel Network Pty Ltd v Television Food Network GP [2010] FCA 204. There was, yet, more recently an unsuccessful endeavour before another judge of this Court to challenge that refusal of a stay: see Food Channel Network Pty Ltd v Television Food Network, GP [2010] FCA 372. 4 Television Food Network, on the strength of the order, following taxation, to which I have referred, issued a demand under the Corporations Act 2001 (Cth) (Corporations Act) upon Food Channel Network for the payment of the sum of $99,713.53. The application before me today is an application under s 459G of the Corporations Act for an order setting aside that statutory demand. 5 The appeal instituted following the grant of leave to appeal against the primary judgment remains pending. It is to be heard on 17 and 18 May 2010 in the sittings of the Full Court in Brisbane. 6 The basis for the application to set aside the statutory demand was put forward not under s 459H of the Corporations Act but rather on the basis that, in terms of s 459J(1)(b) of the Corporations Act, there was "some other reason" why the demand should be set aside. That other reason was said to be found in a combination of circumstances relating to firstly, the fact that there was an underlying trademark dispute which was the subject of appeal and that Food Channel Network had not been able to raise, as it had earlier expected or hoped, a sum sufficient to pay the amount of the taxed costs. 7 I should note that it appears that on the hearing of the stay application on 4 March 2010 a member of the firm of solicitors who act for Television Food Network offered an undertaking to the Court to hold the moneys the subject of the taxation order in his firm's trust account in an interest bearing investment to abide the outcome of the appeal to the Full Court. That was a factor taken into account by the Court in refusing the stay application. In other words, there was provision by undertaking which admitted of comfort to Food Channel Network that payment of the sum sought would not be dissipated by Television Food Network. That undertaking remains in place. Insofar as the same may have been necessary, the undertaking already having been proffered on 4 March 2010, I understood it to be proffered again on behalf of Television Food Network or at least stated in open court that the undertaking remained extant. 8 The evidence read on behalf of Food Channel Network disclosed that it was not able to pay the sum sought, notwithstanding endeavours which it had made. It also disclosed that the company was, to say the least, apart from whatever intellectual property assets it might have, otherwise of no particular worth. 9 The submission was made that the issuing of the statutory demand was an abuse of process in the sense that it was designed to foreclose the prosecution of an appeal which could not be said to be hopeless, at least in the sense that its merits had been sufficient to attract a grant of leave. 10 Reliance was initially placed on behalf of Food Channel Network upon the judgment of the Queensland Court of Appeal, Neutral Bay Pty Ltd v Deputy Commissioner of Taxation (2007) 68 ATR 886 (Neutral Bay) for the proposition that even though the institution of an appeal did not amount to a stay there was, nonetheless, a dispute in respect of the judgment which underpinned the present costs liability which was pending and which provided an "other reason" for setting aside the statutory demand. Upon it being pointed out that the Court of Appeal's judgment in Neutral Bay had been reversed by the High Court: see Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 (Broadbeach Properties), the submission was made that the reversal was referrable to particular sentiments evident in the Taxation Administration Act 1953 (Cth) (Taxation Administration Act) with respect to the recovery of a debt grounded in a taxation assessment, notwithstanding the existence of objection, appeal or review proceedings. In other words, it was submitted that statements made by the Court of Appeal in relation to the discretion under s 459J of the Corporations Act in non-revenue debt related matters remained good law. 11 The Court of Appeal's decision in Neutral Bay was the culmination of what Broadbeach Properties demonstrates to be a false line of Queensland authority. The origins of that false line of Queensland authority are to be found in Softex Industries Pty Ltd v Federal Commissioner of Taxation (2001) 48 ATR 239 and may be traced to Neutral Bay via Willemse Family Company Pty Ltd v Deputy Commissioner of Taxation [2003] 2 Qd R 334 and KW & KM Quinn Investments Proprietary Limited v Deputy Commissioner of Taxation [2004] QCA 91. A contrary view, at least insofar as revenue law debts are concerned, was evident in a judgment of the Full Court of this Court in Hoare Brothers Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 (Hoare Brothers). Hoare Brothers was a decision which was approved by the High Court in Broadbeach Properties. 12 On behalf of Television Food Network, it was submitted that, on analysis, Broadbeach Properties could be seen to operate rather more widely in its disapproval of sentiments evident in the Court of Appeal's judgment in Neutral Bay than just in respect of revenue law debts. I note that in their joint judgment in Broadbeach Properties at [57], Gummow ACJ and Heydon, Crennan, and Kiefel JJ observed: [57] Nothing turns upon the attribution to a s 459G application of the character of a proceeding in which, as Keane JA said, a tax debt may be disputed by the applicant taxpayer. Section 459G applications by taxpayers are not Pt IVC proceedings and production by the Commissioner of the notices of assessment and of the GST declarations conclusively demonstrates that the amounts and particulars in the assessments and declarations are correct. That being so, the operation of the provisions in the taxation laws creating the debts and providing for their recovery by the Commissioner cannot be sidestepped in an application by a taxpayer under s 459G of the Corporations Act to set aside a statutory demand by the Commissioner. 13 In my opinion, a like observation can be made in respect of the general position which prevails in respect of judgments of this Court which are the subject of an appeal. Order 52, r 17 provides materially: An appeal to the court shall not: (a) operate as a stay of execution or of proceedings under the judgment appealed from; or (b) invalidate any intermediate act or proceeding except; so far as the court or a judge or the court below may direct. That, it seems to me, creates a similar situation, in the absence of a stay order, to that which prevails in respect of a revenue law debt which is under challenge. So far as a judgment of this Court is concerned, a pending appeal does not prevent execution upon a judgment. To prevent execution a stay must be obtained either from this Court insofar as the appeal comes from the exercise of original jurisdiction or, insofar as the appeal comes from another court, alternatively from that court. 14 That seems to accord with a position apprehended by McClelland CJ in Eq, in Barclays (Australia) Finance Limited v Mike Gaffikin Marine Proprietary Limited (1996) 21 ACSR 235 (Barclays Finance) in the sense that his Honour was of the view, in that case, that the pendency of an appeal did not provide an "other reason" for setting aside a statutory demand based upon the judgment under appeal. In particular, at pp 237-238, his Honour observed: The present application is put on two grounds. The first, under s 459H, is that there is a genuine dispute between the parties about the existence of the debt to which the demand relates. The second, under s 459J(1)(b), is based on the pendency of the appeal and the security to Gaffikin Marine provided by the respective payments into court referred to above. The assertion that there is a genuine dispute about the existence of the debt is in turn based on two grounds. The first relies on the existence of the undetermined appeal, in which orders are sought by Dan (inter alia) that the proceedings brought by Gaffikin Marine be dismissed and that Gaffikin Marine pay the costs of those proceedings. If the appeal succeeds, it is possible that the costs orders of 16 July 1995 (including the order against Barclays, although it is not an appellant) may be set aside. The answer to this submission is that the possibility that a presently existing and enforceable debt may be set aside in the future pursuant to a subsisting appeal does not give rise to a genuine dispute about the existence of the debt within the meaning of s 459H: see eg Hoare Bros Pty Ltd v DCT (1995) 16 ACSR 213; 13 ACLC 358; Wilden Pty Ltd v Greenco Pty Ltd (1995) 13 ACLC 1039. The position would of course be different if there were a stay of proceedings under, or stay of execution of, the costs order against Barclays, but there is not, and in the absence of any such stay and notwithstanding the pendency of the appeal, the costs orders of 16 July 1995 against Barclays (together with the judgment of 16 May 1996), unless and until set aside on appeal, operate as res judicata determining the matter of Barclays' costs liability to Gaffikin Marine: see Spencer-Bower & Turner Res Judicata 2nd ed p 144; Lahoud v B & M Quality Constructions (22 July 1994, SC(NSW), McLelland CJ in Eq, unreported). 15 And then a little later at p 239: I turn now to the final ground relied on based on s 459J(1)(b). It seems clear that the pendency of the appeal would not of itself provide any sufficient reason for setting aside the demand under that provision: see Hoare Bros, supra, and Wilden, supra. 16 Returning then to the joint judgment in Broadbeach Properties, one finds at para 59 through to para 62 observations made concerning s 459J of the Corporations Act in these terms: 59 Something should be added respecting the additional alternative ground found in para (b) of s 459J(1) of the Corporations Act. That was that the statutory demands were to be set aside because the Court of Appeal and the primary judge were "satisfied" that, although there were no defects in the demands, there was "some other reason" to set them aside. 60 It first should be observed that the hypothesis in the present appeals must be, in accordance with what has been said above, that there is no "genuine dispute" within the meaning of s 459H(1). Both the primary judge and the Court of Appeal emphasised the importance of the disruption to the taxpayers, their other creditors and contributories that would ensue from a winding up, together with the absence of any suggestion that the revenue would suffer actual prejudice if the Commissioner were left to other remedies to recover the tax debts. But these considerations are ordinary incidents of reliance by the Commissioner upon the statutory demand system. 61 Keane JA, expressing disapproval of what had been said to the opposite effect by Olney J in Kalis Nominees Pty Ltd v Deputy Commissioner of Taxation, held that the scope of the discretion conferred by para (b) of s 59J(1) should be determined by the subject matter and purposes of the Corporations Act, to the exclusion of "the tax law". But, as remarked earlier in these reasons, Pt 5.4 contemplates that the "debts" in respect of which statutory demands may issue will include "tax debts" in the sense given to that expression in these reasons. The "material considerations" which are to be taken into account, on an application to set aside a statutory demand, when determining the existence of the necessary satisfaction for para (b) of s 459J(1) must include the legislative policy, manifested in ss 14ZZM and 14ZZR of the Administration Act, respecting the recovery of tax debts notwithstanding the pendency of Pt IVC proceedings. 62 The result is that the exercise of discretion by the primary judge under s 459J(1)(b) miscarried, and the Court of Appeal erred in upholding and supplementing it. Against the possibility of this Court so concluding, the respondents submitted that the matter should be concluding, the respondents submitted that the matter should be remitted to the Supreme Court for re-exercise of the discretion under that provision. However, no fresh ground upon which the respondents might then succeed was suggested beyond reference to the time which has elapsed and the progression of the Pt IVC proceedings towards determination. But such a consideration, if it were supported by evidence of the state of progression of the Pt IVC proceedings, would be relevant in the operation of Pt 5.4 of the Corporations Act, if at all, at the later stage of the hearing of any winding up application. There should be no re-exercise of the discretion conferred by s 459J(1)(b). [footnote references omitted] 17 Bearing in mind what I have already observed as to what seem to me to be similarities between the provisions in the Taxation Administration Act which permit the recovery on an assessment under challenge with O 52 r 17 in circumstances where there is not a stay order, the observations made by the High Court concerning s 459J in Broadbeach Properties are inconsistent with any continued authority in respect of what was said concerning s 459J in the Court of Appeal in Neutral Bay. 18 Further, and with respect, I also call into question whether reliance should continue to be placed upon observations made in Eumina Investments Pty Ltd v Westpac Banking Corporation [1998] FCA 824 concerning s 459J(1)(b). It was there stated at p 5 and p 6: One circumstance where it may be unjust for a demand to stand, in my opinion, is where there is a judgment or order which precludes a contention that there is a genuine dispute or an offsetting claim but there is on foot a bona fide appeal from the judgment or order. In those circumstances the court may, if justice requires, and subject to the possibility of imposing conditions as contemplated by section 459M, set aside a demand which is based on the judgment or order which is subject to appeal or in respect of which, if an appeal succeeds there would be an offsetting claim. I find it difficult, with respect, to reconcile that statement with the reversal of Neutral Bay by the High Court in Broadbeach Properties. 19 The situation which prevails then is that for reasons which were given on 4 March 2010 a stay was refused. It was incumbent upon Food Channel Network to bring forward such evidence as it could to warrant a stay. An application to set aside a statutory demand should not be seen, in my opinion, as an opportunity to remedy evidentiary failures on a stay application. 20 There is a difference between a refusal to set aside a statutory demand and whether or not the Court would in the event that the creditor was so disposed to bring a winding up application, refuse in the exercise of discretion to make a winding up order. A winding up order involves a change of status for a corporation in the sense that it removes control of the corporation from its directors and hands it to a liquidator for the purpose of winding up the corporation. A statutory demand has a particular deeming effect but does not, in itself, result in a change of status. All it does is equip a creditor, if so disposed, with a ground upon which prima facie it is entitled to a winding up order. 21 I should for completeness record that there was an endeavour on the part of the Food Channel Network to rely upon two affidavits which were not filed in support of the application to set aside the statutory demand within the period provided for by the Corporations Act. I took the view that to permit reliance upon these affidavits would be inconsistent with David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. 22 In any event it was said that these did nothing more than enlarge upon sentiments which were evident in the affidavit which was filed and served within time. 23 For these reasons it seems to me that to permit reliance upon the existence of the pending appeal would be to permit reliance upon a basis which does not provide an "other reason" for the purposes of s 459J(1)(b) of the Corporations Act. In that regard, I note in particular that in expressing agreement with Santow J's judgment in Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229 wherein there is express approval of Barclays Finance, Young CJ in Eq, observed at [58]: Although the wording of section 459J(1)(b) of the Corporations Act appears wide, its context and history requires reading it down to encompass in general terms only cases where the Court is satisfied that injustice will be caused unless the demand is set aside because of a defect relating to, but not in, the demand: see Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 at 17. I respectfully agree with that sentiment. 24 For these reasons the application is dismissed. 25 As to the question of costs, my opinion is that whilst there was a strict time limit within which the application to set aside the statutory demand had to be brought, if it was to be brought, the application was one which Food Channel Network chose to bring in circumstances which necessarily required the discrete consideration of a body of jurisprudence which made the bringing of the application fraught with risk. Whilst, in reading the outlines of submissions, the thought occurred to me that one way of ordering costs in the event that I chose not to set aside the statutory demand would be to make those costs abide the order of the Full Court on the appeal, it seems to me, having heard submissions in respect of costs, that this would not be a judicial exercise of the costs discretion. Rather, the application to set aside the statutory demand should be viewed as a discrete forensic challenge which has been lost and that, therefore, the ordinary rule, which is that costs follow the event, should be applied. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.