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[2024] FCA 680
Federal Court of Australia
2024-06-24
Button J
Original judgment source is linked above.
BUTTON J: 1 The Plaintiff (Mesha Feet) applied to set aside a statutory demand issued by the Deputy Commissioner of Taxation. Mesha Feet contends it is a solvent company, is not indebted to the taxation authorities, discharged its 2021 taxation liability with a "Promissory Note", and discharged its 2022 taxation liability with a "Bill of Exchange". By its originating process, Mesha Feet also contended it is owed an amount pursuant to an alleged default on a unilateral "Notice of Payment" contract, however, Mesha Feet made no submissions in support of a contention that the statutory demand should be set aside on the basis of an offsetting claim. 2 The proceeding came before me on an application for review of a decision of a Registrar dismissing the originating process. Mesha Feet and the First Defendant provided written submissions. There was previously a Second Defendant, but that individual is an employee of the Australian Taxation Office (the ATO) and not a necessary party. The named Second Defendant did not file a notice of address for service. I made orders during the hearing removing the Second Defendant as a party to the proceeding. Accordingly, these reasons refer to "the Defendant", being the First Defendant. 3 I granted leave for Mesha Feet to be represented by its director, Claude Tobgui. That leave was granted as the Court was, during the interlocutory stages of the proceeding, informed that the company had been unable to find lawyers willing to take on the proceeding and advance the arguments those controlling Mesha Feet wished to advance. That Mesha Feet had trouble finding solicitors to put its case is not surprising. 4 Be that as it may, Mesha Feet's arguments must be assessed on their merits. 5 Mesha Feet read the affidavits of Claude Togbui dated 16 February 2024 and 7 June 2024. It also tendered a document by which it asked some questions of the ATO, and the ATO's response to those questions. Mesha Feet also relied on a Notice to Admit and the Defendant's response to that document. The Defendant read an affidavit of Sriyan Wijesinghe dated 7 December 2023, an affidavit of Namitesh Prasad dated 13 December 2023 and a further affidavit of Namitesh Prasad dated 1 Mach 2024.
Facts 6 The statutory demand was in respect of the company's income tax liabilities for the financial years ended 30 June 2021 and 30 June 2022, including general interest charges, which liabilities totalled $45,245.28. It was served on 2 November 2023. There was no suggestion that the statutory demand was not properly served, or that it did not satisfy the requirements of s 459E of the Corporations Act 2001 (Cth) (the Corporations Act). 7 It should be noted that Mesha Feet does not contest the underlying tax liabilities but contends it has discharged its taxation liabilities by provision of the asserted "Promissory Note" and "Bill of Exchange". 8 On 13 August 2022, Mr Tobgui sent the Deputy Commissioner of Taxation a document headed "Promissory Note". The covering letter was headed "Notice of Apology, Notice of Payment and Notice" and identified the subject matter as delivery of "payment instrument promissory note … as payment to discharge the taxation liability for Mesha Feet Ltd". The letter said (inter alia): "I deliver in 'good faith' payment by way of Promissory Note - Numbered 'PNCST240820221345' in satisfaction against the outstanding debt/account above. The Promissory Note has been tendered in good faith." The letter said that if the "Promissory Note" was ineffective to discharge the liability, it should be returned within three days and that, if the note was not returned or presented to the maker, "it shall be taken by all parties in this matter that the Australian Taxation Office has accepted the note in full and final satisfaction to discharge the maker's liability to pay the alleged debt to the Australian Taxation Office" (emphasis in original). 9 Mr Tobgui's tax file number has been redacted in the images below. 10 The front of the Promissory Note was as follows: 11 The rear of the Promissory Note was as follows: 12 The Defendant did not dispute receipt of this communication, did not respond to it, and did not attend at Twin's Café in Coburg at the date and time specified. Nor was the "Promissory Note" returned. 13 On 6 July 2022, the ATO issued a "Statement of Account" to Mesha Feet, which showed the amount of $32,263.55 outstanding as at 1 July 2022 (being the total of the 2021 tax liability and general interest charges calculated as at 1 July 2022). 14 On 12 October 2022, Mr Tobgui sent another letter, headed "Default Notice and Notice and Demand for Further and Better Particulars" to the ATO. That letter identified the subject matter as "Re: Taxation liability for Mesha Feet Pty Ltd". The letter referred to an ATO letter received on 20 September (I infer 2022) threatening enforcement action if Mesha Feet did not pay its debt. The letter asserted that no issue had been taken by the ATO with Mesha Feet's 13 August 2022 letter, posed a number of questions, and then asserted that the ATO's failure to respond as demanded was an "admission of guilt" to not having evidence that the promissory note was insufficient to discharge the tax liability. The letter demanded that the evidence sought be provided by 4 November 2022. 15 On 11 November 2022, Mr Tobgui sent a further letter, headed "Final Notice", to the ATO. That letter also identified the subject matter as "Re: Taxation liability for Mesha Feet Pty Ltd". It recapped earlier correspondence and repeated the assertion that failure to respond as demanded would constitute an "admission of guilt" by the ATO. 16 Mr Tobgui then sent a further letter dated "Notice of Default Judgement [sic]" dated 6 December 2022, with the subject matter "Re: Taxation liability for Mesha Feet Pty Ltd". That letter asserted that, by virtue of the ATO's failure to respond to the earlier correspondence, there was a "Default Judgment" against the ATO and it was taken to have agreed to various matters including that the "Promissory Note" was sufficient to discharge the 2021 tax liability. The correspondence then asserted a liability on the part of the ATO to pay certain fees to Mr Togbui. 17 Events then turn to correspondence concerning the 2022 tax liability. 18 On 9 June 2023, Mesha Feet sent the Deputy Commissioner of Taxation a letter headed "Notice and Notice of Payment to Discharge Tax Liability". The letter was signed by Mr Togbui as director of Mesha Feet, as was other correspondence in relation to the 2022 taxation liability. 19 The 9 June 2023 letter said (inter alia): "We deliver in 'good faith' payment by way of Bill of Exchange - Numbered BOE230620231015, that is in accord, compliance and complete satisfaction of the Australian Bills of Exchange Act 1909, for discharge of taxation liability reference number 7139162767397, which is in full and final satisfaction against the 'Income Tax Account Statement of Account' dated 30 May 2023" (emphasis in original). 20 The letter demanded that any defect or deficiency be raised in three days and stated that, if the "Bill of Exchange" was not returned to the maker at the time, date and place stipulated on it, "it shall be deemed by all parties in this matter that the creditor has accepted it as sufficient consideration to satisfy or discharge the debtor's alleged liability to the Australian Taxation Office". The letter stated that a personal cheque for $46.86 was attached in full and final payment of the statement of account and that, should the ATO retain the cheque for 72 hours or longer, or deposit it, "it shall be hereby taken as evidence of its agreement to accept my offer that this is full and final payment of the 'Income Tax Account Statement of Account' for Mesha Feet Pty. Ltd with reference number 7139162767397" (emphasis in original). 21 The copy of the "Bill of Exchange" appeared as follows in an annexure to Mr Tobgui's first affidavit: 22 It should be noted that the "sum certain" specified in this "Bill of Exchange" was $46.86. That amount is obviously far less than the amount of the company's 2022 tax liability. 23 The ATO did not respond to this correspondence and did not attend at Twin's Café in Coburg at the time and date stipulated. The ATO did not return the attached cheque for $46.86, but banked it. That amount was credited in a Statement of Account issued by the ATO on 27 June 2023. 24 The correspondence of 9 June 2023 also attached a document that was a marked up copy of a "Statement of Account" issued by the ATO. Mr Togbui marked it up. The full document, as marked up, runs to six pages, but the first page conveys the tenor of the annotations: 25 In submissions, Mesha Feet characterised the original version of the Statement of Account issued by the ATO dated 30 May 2023 as an "offer" to contract with the company, and which was not marked "not negotiable", thereby freeing Mr Togbui to mark it up and send it back, as he did. Mesha Feet characterised the "Bill of Exchange" sent with this document as consideration for it. Mesha Feet contended that the ATO had thereby contracted to accept the "Bill of Exchange" in full discharge of the 2022 tax debt. 26 The ATO issued a Statement of Account dated 27 June 2023, which showed that the two tax debts (less the $48.86 from the banked cheque and an internal transfer from an integrated client account) remained outstanding. 27 Mesha Feet again followed up with some further correspondence. It issued a letter dated 18 July 2023, headed "Default Notice and Demand for Further and Better Particulars and Notice and Demand for Payment of Debt". It demanded a response to various questions and made the same self-serving suggestions as earlier correspondence as to the consequences of a failure by the ATO to respond. It attached an invoice issued by Mesha Feet to the ATO for $187,473.00 said to be owed by the ATO in respect of a "default" occasioned by the failure to acknowledge the "Bill of Exchange" as full and final payment of the tax liability. 28 Mesha Feet issued a further letter headed "Final Notice and Demand for Further and Better Particulars and Notice of Default for Payment of Debt", dated 15 August 2023. More self-serving statements were made about the consequences of the ATO's failure to respond. A "Default Notice", in the form of another copy of the $187,473.00 invoice was also issued. 29 A letter headed "Notice of Default Judgement [sic] and Final Notice for Payment of Debt" dated 15 September 2023 was issued to the ATO, again with self-serving statements as to deemed admissions, along with a further copy of the invoice issued by Mesha Feet to the ATO, this time labelled "Final Notice".
The parties' arguments 30 The Defendant submitted that the means by which tax related liabilities can be discharged are specified by reg 21 of the Taxation Administration Regulations 2017 (Cth) (the Regulations). 31 Section 16A(2) of the Taxation Administration Act 1953 (Cth) (the TAA) provides that "[t]he regulations may make provision for and in relation to the methods by which the amount of the liability may be paid". 32 Section 16A(3) provides that, without limiting s 16A(2), the regulations may make provision for and in relation to the making of payments using collection agents, electronic funds transfer systems, credit cards, or debit cards. 33 Regulations were duly made. Regulation 21 of the Regulations is in the following terms (emphasis in reg 21(2) added): Payment of tax-related liabilities (1) A person who pays a tax-related liability must pay the liability in Australian currency. (2) The person must pay the tax-related liability using a method approved by the Commissioner and in accordance with any instructions provided by the Commissioner. (3) The person must pay the amount of the tax-related liability in a single payment unless the Commissioner agrees that the person may make more than one payment. 34 Arguments about whether the proffered "Bill of Exchange" or "Promissory Note" were "Australian Currency" (for the purposes of reg 21(1)) do not need to be determined as neither provision of a promissory note, nor provision of a bill of exchange, is a method approved by the Commissioner for the payment of taxation liabilities pursuant to reg 21(2). 35 The ATO's website, a screenshot of which was in evidence, sets out the specific means by which tax liabilities can be paid, such as by direct debit. It does not say promissory notes or bills of exchange will be accepted. 36 The Defendant also argued that the failure of the ATO to respond to Mesha Feet's multiple pieces of correspondence by expressly rejecting the "offers" so made, may not be desirable, or in accordance with its own published guidance about responding to taxpayers who make offers or proffer payment on conditions, but did not mean that the means of payment proffered by Mesha Feet had been accepted. 37 The Defendant finally argued that the "Promissory Note" was not an effective promissory note in any case as it did not contain a promise to pay and the effect of the document was unclear. The Defendant argued that the "Bill of Exchange" was also ineffective as it was issued to and by the same person, and stated a sum certain of only $48.86. 38 The main elements of Mesha Feet's arguments, as best they can be understood, were as follows: (1) Eight pieces of Federal legislation support a proposition that bills of exchange, promissory notes and money orders are "Australian Currency" and "Money". (2) The ATO's documents say it accepts cash and cheques as means by which tax debts can be paid. (3) By reference to a photocopy of a $100 note, "cash" is a promissory note, so therefore it is not correct for the Defendant to submit that the purported satisfaction of the 2021 tax liability by the "Promissory Note" was ineffective. (4) There was nothing expressly prohibiting the discharge of tax debts by provision of a promissory note or a bill of exchange, and harmony with the provisions of the eight pieces of other legislation referred to supports promissory notes, and bills of exchange, being an effective means of payment of tax liabilities. (5) The ATO has issued public documents threatening prosecution (and even prison or a fine) if its notices are not complied with, so there should be consequences arising from the ATO's failure to comply with notices issued by Mesha Feet. (6) The ATO did not return the "Promissory Note", and therefore the consequences stated in Mesha Feet's correspondence followed, and the provision of that note was effective to discharge the 2021 tax debt. It was suggested that there was some kind of "equitable estoppel", or agreement reached. (7) If the ATO rejected the "Promissory Note" it was rejecting payment, and, by reference to a maxim attributed to Sir Edward Coke - "money refused liberates the debtor" - Mesha Feet was free of any debt in respect of the 2021 tax legality. (8) Cheques are a form of bill of exchange and, as the ATO says it accepts cheques, a tax liability could (contrary to the Defendant's position) be discharged by provision of a bill of exchange. (9) The "Statement of Account" issued by the ATO dated 30 May 2023 was an offer to Mesha Feet, which was incomplete. The "offer" did not say it was not negotiable, so it was capable of being modified and returned by Mesha Feet with stated terms, which Mr Togbui signed, thereby creating a contract on the basis that the "Bill of Exchange" constituted consideration to support conclusion of the "contract". The "Bill of Exchange" was not returned, but was retained for more than 72 hours and the cheque was banked. There was therefore acceptance and a contract to discharge the 2022 tax debt by paying $48.68 was formed on the basis of "equitable estoppel" and "tacit assent".
Consideration 39 The grounds on which an application to set aside a statutory demand can be made under s 459G are set out in ss 459H and 459J of the Corporations Act. Those provisions prescribe the following four grounds on which a statutory demand may be set aside. Those sections are enlivened if the Court is satisfied that: (a) there is a genuine dispute between the company and the person serving the statutory demand about the existence or amount of a debt to which the demand relates: s 459H(1)(a); (b) the company has an offsetting claim: s 459H(1)(b); (c) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside: s 459J(1)(a); or (d) there is some other reason why the demand should be set aside: s 459J(1)(b). 40 Here, Mesha Feet contended there was a genuine dispute as to the existence or amount of the debts the subject of the statutory demand. 41 It is clear on the authorities that spurious, hypothetical, illusory or misconceived arguments do not qualify as giving rise to a "genuine dispute" about the existence or amount of the debt to which a statutory demand relates: eg MNWA Pty Ltd v Deputy Commissioner of Taxation (2016) 250 FCR 381; [2016] FCAFC 154 at [98] (Rares, Farrell and Davies JJ), referring to Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd (1997) 76 FCR 452 at 464F (Northrop, Merkel and Goldberg JJ), applied in Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 80 FCR 296 at 301F-G (French, Kiefel and Sundberg JJ). Similarly, a claim will not be an "offsetting claim" for the purposes of s 459H(1)(b) of the Corporations Act if there is no serious question to be tried, or the asserted claim is frivolous or vexatious: eg First Equilibrium Pty Ltd v Bluestone Property Services Pty Ltd (in liq) (2013) 95 ACSR 654; [2013] FCAFC 108 at [21] (Gordon, Griffiths and Farrell JJ). 42 The conclusion that the means by which Mesha Feet purported to pay its taxation liabilities are not approved means for payment, is dispositive of the present application. There is no "genuine dispute" as to the existence or amount of the debt to which the statutory demand relates (s 459H(1)(a) of the Corporations Act). 43 As noted above, Mesha Feet did not advance any submissions in support of the existence of an offsetting claim. As such, while raised in the originating process, the point was abandoned. In any event, even if not abandoned, I do not accept that the invoices and demands issued by Mesha Feet demonstrate that Mesha Feet has a credible offsetting claim (s 459H(1)(b) of the Corporations Act). Any suggestion that the ATO is indebted to Mesha Feet is spurious. For completeness, I note that Mesha Feet did not contend that there is any defect in the demand causing substantial injustice, or "some other reason" by reference to which the statutory demand may be set aside pursuant to s 459J of the Corporations Act. 44 Mesha Feet's contention that it effectively discharged its taxation liabilities by the "Promissory Note" and the "Bill of Exchange" are spurious and must be rejected. Payment by those means is not a means of payment approved by the Commissioner (reg 21(2) of the Regulations). As the Defendant submitted, this is dispositive and it is not necessary to get bogged down in arguments regarding whether the particular "Promissory Note" and "Bill of Exchange" constitute "Australian currency" for the purposes of reg 21(1) of the Regulations. 45 Regulation 21(2) is expressed in positive terms. It refers to means of payment that are "approved by the Commissioner". The fact that there is no legislation specifying that promissory notes and bills of exchange cannot be used as means to pay tax debts is beside the point. The point is that they are not means of payment that have been approved. The negative (absence of an express prohibition on payment by bills of exchange or promissory notes) does not establish the positive (approval of those means of payment by the Commissioner). 46 I also do not accept Mesha Feet's argument that a promissory note is "cash", and that a bill of exchange is a "cheque". That argument was run as the ATO says it accepts cash and cheques as means by which tax debts can be paid. The argument is a specious "bootstraps" argument, which proceeded by suggesting that a $100 note was a promissory note, and that a cheque was a bill of exchange. Even accepting the premise, it does not follow that all promissory notes are cash and all bills of exchange are cheques. 47 Nor do I accept that, as submitted by Mesha Feet, this presents a tension between different pieces of Federal legislation, or is inconsistent with the eight pieces of Federal legislation to which Mesha Feet referred. 48 The first of the eight pieces of legislation Mesha Feet relied on was s 89(1) of the Bills of Exchange Act 1909 (Cth) (the Bills of Exchange Act). That provision is in the following terms: (1) A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to or to the order of a specified person, or to bearer. 49 As may be seen, s 89(1) only describes what constitutes a promissory note. It says nothing about whether particular liabilities may be discharged by delivery of a promissory note, even if the note issued by Mr Tobgui comes within the description of "promissory note" in s 89(1). 50 The second of eight pieces of legislation was s 51 of the Constitution which refers, at (xvi), to bills of exchange and promissory notes. The fact that instruments of that kind are stated to be within the legislative powers of the Commonwealth parliament is not to the point. 51 The third of eight pieces of legislation is s 39(8) of the Banking Act 1959 (Cth) (Banking Act). Section 39 of that Act is a regulation making power, and the definition of "Australian currency" in s 39(8) only establishes the meaning of "Australian currency" in s 39 of the Banking Act. It has no wider significance and, in any event, the disposition of this case does not turn on the meaning given to "Australian currency" in reg 21(1) of the Regulations. 52 The fourth of eight pieces of legislation is s 9 of the Currency Act 1965 (Cth). It concerns transactions being in Australian currency. It does not assist Mesha Feet's arguments. 53 The fifth of eight pieces of legislation is s 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth). That section contains a definition of "money", which includes promissory notes and bills of exchange. The definition of "money" in legislation concerning the goods and services tax has no bearing on the means by which Mesha Feet's income tax debts could be discharged under s 16A of the TAA and reg 21 of the Regulations. 54 The sixth of eight pieces of legislation is s 131.7(4) of the Criminal Code, being the Schedule to the Criminal Code Act 1995 (Cth). It states, in s 131, that "money" includes negotiable instruments. Again, that is irrelevant to the question of by which means Mesha Feet's tax debts could be discharged. 55 The seventh of eight pieces of legislation is s 17(2)(a)(ii) of the TAA. It provides for the conversion into decimal currency of amounts stated in "the previous currency", which is a reference to the currency provided for by the (now repealed) Coinage Act 1909 (Cth). That Act permitted Australia to have its own coins, several years after Federation, denominated in pounds, sovereigns, shillings, pence etc. Conversion between imperial and decimal currency is not relevant and not of assistance to Mesha Feet. 56 The final piece of the eight pieces of legislation is s 8J of the TAA. It provides that, for the purposes of Subdiv B of Div 2 of Pt III of the TAA, "accounting records" includes bills of exchange and promissory notes. The statutory stipulation as to the breadth of what constitutes an "accounting record" for the purposes of that subdivision says nothing of how tax debts may be paid. 57 Accordingly, none of the pieces of legislation relied on either assist in establishing that tax debts can by paid by promissory notes or bills of exchange, or suggest that there is any tension or disharmony in Federal legislation if tax debts cannot be paid by such means. 58 Mesha Feet also referred to and relied on a number of other provisions in the Bills of Exchange Act, as well as various legal and general dictionary definitions of "note", "bank note", "cash", "cheque", "promissory note", "negotiable instrument", and "bill of exchange". None of that material assists Mesha Feet as none of it supports the proposition that a taxation liability may be discharged by delivery of instruments of the kind delivered by Mesha Feet in purported discharge of its taxation liabilities. 59 I also do not accept that the Defendant became bound to accept the "Promissory Note" or the "Bill of Exchange" by virtue of the ATO's failure to return those instruments within the stipulated time frames (or at all), its failure to return the cheque, its banking of the cheque, or its failure to write back to Mesha Feet expressly rejecting the proffered means of discharging its tax debts. The self-serving statements embedded by Mesha Feet and Mr Tobgui in the correspondence do not elevate the "Promissory Note" or the "Bill of Exchange" to means of payment approved by the Commissioner. 60 While it would have been desirable for the ATO to write back to Mr Tobgui and Mesha Feet expressly rejecting the proffered means of payment, and while the ATO's own Practice Statement recognises that the ATO should write back in response to proposals it does not accept, its failure to do so does not make the ineffective forms of payment effective to discharge Mesha Feet's tax liabilities. 61 I also do not accept that the "Statement of Account" issued by the ATO to Mesha Feet was an "offer" to contract with Mesha Feet regarding the discharge of its tax liabilities. It was nothing of the sort. It was, as was plain on the face of the document, a statement of the amounts that the ATO considered Mesha Feet owed to it. It was not open to Mr Tobgui to load it up with annotations and thereby purport to create some kind of contract. There plainly was no objectively ascertained mutual intention to create legal relations on the terms of that annotated document. Nor is there any discernible basis upon which an equitable estoppel might be said to arise. As Jagot J observed in Atkinson v Commissioner of Taxation [2014] FCA 1217, a case involving facts not dissimilar to those here, at [47]: The statement of account is not a bill of exchange as defined in s 8(1) of the Act. The first applicant was not authorised to do anything with the statement of account under the Act. Writing and putting various stamps on the statement of account had no legal effect under the Act. Nor did delivering that statement of account back to the ATO. The Act is simply not engaged at all by the facts of this case. The notion that a person who owes the ATO money for non-payment of tax can transform the ATO's statement of account into a bill of exchange and then deliver the statement of account back to the ATO and, in so doing, discharge the person's own indebtedness for some nominal amount ($1) and render the ATO liable to pay the original amount owed to the ATO plus interest and other charges is some form of fantasy, unconnected to the operation of the Act. 62 Although the above passage was confined to notations made on a statement of account, the Defendant submitted, and I accept, that Jagot J's observations apply with equal force to other documents unilaterally created by a taxpayer, such as the "Bill of Exchange" and "Promissory Note" issued by Mesha Feet. 63 None of the English authority relied on by Mesha Feet, in which statements have been made about bills of exchange and promissory notes being treated as cash, assist it (Mesha Feet referred to the judgment of Lord Denning in Fielding & Platt Ltd v Najjar [1969] 2 All ER 150; 1 WLR 357 at 361, Ex parte Matthew (1884) 12 QBD 506 and a passage said to be from a case named Jackson v Murphy [1887] 4 TLR 92, but which is in fact from Ferson Contractors Ltd v John Owner Ferris [1981] 1 WLUK 636). Those cases have nothing to do with the means by which taxation liabilities in Australia may be paid. 64 For completeness, I note that the Defendant made additional submissions to the effect that the "Promissory Note" issued by Mesha Feet was not even an effective promissory note and the "Bill of Exchange" was not an effective bill of exchange. However, given that the points referred to above are dispositive, it is not necessary to address those arguments. 65 The application will be dismissed with costs. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Button.
Mesha Feet Pty Ltd
Allen acting as Deputy Commissioner of Taxation