Supreme Court of WA|2005-12-16|Before: Ms J

Sas02 Pty Ltd v Deputy Commissioner of Taxation of The Commonwealth of Australia [2005] WASC 279 (16 December 2005)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : SAS02 PTY LTD -v- DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA [2005] WASC 279

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Corporations Act 2001 (Cth) - Application to set aside statutory demand an abuse of process - Admissibility of subsequent affidavit - Turns on own facts

D & S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794

David Grant & Co Pty Ltd v Westpac Banking Corp (1994) 12 ACLC 895

Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 14 ACLC 1703

K W and K M Quinn Investments Pty Ltd v Deputy Commissioner of Taxation [2003] QSC 336

Genesis Management Services Pty Ltd v Soniclean Pty Ltd [2005] SASC 224

Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 62 FCR 302

Kanwa Nominees Pty Ltd v Australian Taxation Office [2001] ACTSC 113

MGM Bailey Enterprises v Austin Australia Pty Ltd [2002] NSWSC 259; (2002) 20 ACLC 765

Missay Pty Ltd v Seventh Cameo Nominees Pty Ltd (In Liq) [2000] VSC 397

Moutere Pty Ltd v Deputy Commissioner of Taxation [2000] NSWSC 379

Softex Industries Pty Ltd v Commissioner of Taxation [2001] QSC 377

Willemse Family Company Pty Ltd v Deputy Commissioner of Taxation [2002] QSC 292

1 MASTER SANDERSON: This is the plaintiff's application to set aside a statutory demand. The demand was served on 7 October 2005. The application to set aside the demand was filed and served on 28 October 2005. The application is brought under the provisions of s 459G of the Corporations Act 2001 (Cth).

2 The application is supported by an affidavit of Joanne Karen De Hollander sworn 28 October 2005. The matter was first returned on 16 November 2005. By that date, the defendant had filed two affidavits. The first affidavit was of Trevor Vince Kim sworn 10 November 2005. The second was the affidavit of Betty-Jane Logue sworn 11 November 2005. At the first hearing the plaintiff was ordered to file and serve any further affidavits on or before 25 November 2005. The defendant was given leave to file any answering affidavit on or before 2 December 2005. The plaintiff filed a further affidavit of Ms De Hollander. That affidavit was sworn 5 December 2005 and was filed 6 December 2005. No further affidavits were filed on behalf of the defendant.

3 At the hearing of the application counsel for the defendant objected to reliance being placed on the affidavit of Ms De Hollander of 5 December 2005. This objection was taken on two grounds. First, it was said that the affidavit was late and no explanation was offered as to why there had been no compliance with the order made on 16 November 2005. Second, it was said that the affidavit raised matters which were not raised in the original affidavit. This, it was said, was impermissible, justifying leave being refused.

4 It is true that there is no attempt made in Ms De Hollander's affidavit of 5 December 2005 to explain why there had been no compliance with the earlier orders. Nor is there any evidence on affidavit from the plaintiff's solicitors or anyone else who may have been able to explain the delay. The programming orders were made, effectively, by consent. There was no suggestion on the part of counsel that the time limited for filing the plaintiff's further affidavits was not sufficient. The order, once made, should have been complied with. At the very least, some attempt should have been made to contact the defendant's solicitors, explain the delay and seek their agreement to an extension of time for filing of the affidavit. There is no suggestion that the plaintiff's solicitors took that course.

5 In determining whether or not a late affidavit ought be received into evidence, there are always competing claims. On the one hand, the party seeking to rely on the affidavit is putting forward evidence which it believes will assist its case. The interests of justice clearly require that all relevant evidence be considered so as to achieve a fair result. On the other hand, a defendant is entitled to know well in advance of a hearing the case that it has to meet. It has every right to expect compliance with the orders of the Court so that it can properly prepare its case. Otherwise, the defendant is placed at a disadvantage. The offer of an adjournment and a consequent costs order often will not protect the defendant's position. If nothing else the delay consequent upon the adjournment may well run counter to the defendant's interests.

6 In this case, were the only difficulty with the affidavit the plaintiff's non-compliance with the directions order, I should have been inclined to allow the affidavit into evidence. It deals with matters which are of importance to the plaintiff's application. It does not raise matters which it would be necessary for the defendant to deal with by further affidavit evidence. Although it was served significantly out of time, it was nonetheless served a number of days before the return date. Thus, the defendant would have had time to consider the contents of the affidavit and have been in a position to deal with it at the hearing. But there are more fundamental problems with the affidavit which, in my view, render it inadmissible.

7 Section 459G of the Corporations Act is a provision which might be described as procedural. It sets out the procedure available to a corporation which has been served with a statutory demand to have that demand set aside. Although the section might be described as procedural, it is nonetheless one which has real teeth. It requires an application to be made within 21 days. There is no power to extend that time: see David Grant & Co Pty Ltd v Westpac Banking Corp (1994) 12 ACLC 895. The section requires that an affidavit supporting the application be filed and served on the party making the demand. It has consistently been held that the affidavit served with the application must disclose the basis upon which it is said the demand is to be set aside. This question was considered by Sundberg J in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 14 ACLC 1703. His Honour said that the affidavit must "disclose facts showing there is a genuine dispute between the parties": see 1708. In his view, a mere assertion that there is a genuine dispute is not enough. He added:

"An affidavit which exhibits an exchange of correspondence between the parties or between their solicitors from which it appears that a claim is made and rejected for reasons given can qualify as a supporting affidavit."

8 His Honour rejected the view that the affidavit must contain sufficient material to make out a case under s 459H. It follows that a party who wishes to do so can supplement its initial affidavit by further affidavit material developing the basis upon which it is said the demand ought be set aside. But the subsequent affidavits cannot raise new material which was not raised in the initial supporting affidavit: see D & S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794 per Perry J at 1798. It is against that background that the admissibility of the second affidavit of Ms De Hollander is to be considered.

9 Ms De Hollander's affidavit of 28 October 2005 has about it the virtue - or perhaps in this case the vice - of brevity. Really, it has only one effective paragraph. That is par 5 and it is in the following terms:

"I refer to paragraph 1 of the affidavit (served with the statutory demand) and deny that SOS02 owes the defendant $123,250.81 as alleged therein and say that it has lodged an objection to the plaintiff's assessment of monies owed by the defendant."

10 Based upon that paragraph, two things can be assumed. First, that the defendant has raised an assessment against the plaintiff in its guise as a taxpayer in an amount of $123,250.81. Second, that the plaintiff has taken advantage of its right to object to that assessment and the objection is yet to be resolved. What of course is missing is any explanation as to why the assessment was raised by the defendant, what objections were lodged and when they were lodged. One might have expected a copy of the objection to be annexed to the affidavit.

11 What has in fact occurred can be ascertained by reference to the affidavits of Mr Kim and Ms Logue. Two assessments were issued to the plaintiff by the defendant. The first was issued on 30 November 2004 and was for the quarter ended 31 December 2002. The second, issued on the same date, was for the quarter ended 31 March 2003. On 28 January 2005 objections were lodged in respect of both of these notices of assessment. (Annexure "TVK-1" to Mr Kim's affidavit gives the date of the objection as 28 January 2005; par 4 of his affidavit gives the date as 3 February 2005. Nothing turns on this discrepancy.) On 22 September 2005 the plaintiff was advised that the objections had been considered and had been allowed in part. A copy of the letter dealing with the fate of the objections appears as Annexure "TVK-1" to the affidavit of Mr Kim. So the amount claimed in the statutory demand is the amount of tax said to be owing after consideration of the plaintiff's objections. Counsel for the plaintiff accepted that this was the position.

12 In her affidavit of 5 December 2005, Ms De Hollander says that an appeal against the assessment has been lodged in the Federal Court. Appearing as Annexure "JKD3" to her affidavit is a copy of the notice of appeal. She then goes on to explain the nature of the dispute with the defendant and the grounds upon which the plaintiff is appealing. She says:

"3 If SAS02 succeeds in its appeal it will not be liable to pay the monies claimed in the defendant's statutory demand dated 6 October 2005.

4 The GST liability for the December 2002 quarter and the March 2003 quarter (that is the basis of the monies claimed by the defendant in the statutory demand) relates to income earned in garden centres operated by Pasadena Holdings Pty Ltd (Pasadena) from 1 July 2000 to 30 October 2002 (garden centres).

5 On 27 September 2002, Pasadena purportedly sold the garden centres to SAS02.

6 SAS02 operated the garden centres on behalf of Pasadena from 1 November 2002 until 7 April 2003.

7 On 7 April 2003 National Australia Bank Ltd appointed Michael Ryan and Ian Francis (receivers) as receivers and managers of Pasadena. Upon their appointment the receivers:

7.1 determined that the sale of the garden centres was invalid;

7.2 claimed that from 27 September 2002, SAS02 conducted the garden centres business on trust for Pasadena; and

7.3 took possession of the garden centres and conducted the business thereof for Pasadena's benefit until 16 October 2003.

8 SAS02 did not make a taxable supply in its own right for the purposes of A New Tax System (Goods and Services Tax) Act 1999 in the December 2002 and March 2003 quarters. The taxable supplies reported by SAS02 in its Business Activity Statements for those quarters were in fact made by Pasadena.

9 Alternatively, if SAS02 made a taxable supply in the December 2002 and March 2003 quarters, it did so as Pasadena's agent."

13 On behalf of the plaintiff it was submitted that par 5 of Ms De Hollander's first affidavit clearly indicated that there was a dispute as to whether or not the defendant's assessment should stand. It was submitted that having referred to the dispute, Ms De Hollander's second affidavit could be seen as doing no more than explaining the present status of that dispute. It was further submitted that based upon the initial affidavit the defendant could have been in no doubt as to the basis upon which it was said there was a dispute.

14 On behalf of the defendant it was said that the initial affidavit did not give any clear expression as to the basis upon which the demand ought be set aside. Counsel submitted that a reading of the first affidavit suggested that the demand ought be set aside under s 459J because an objection had yet to be determined. Now the case was put that, in fact, the objection had been determined and that it was unreasonable for the defendant to seek payment of the debt pending an appeal. That was an altogether different argument and one which was inconsistent with the material in the first affidavit.

15 I am satisfied that the affidavit of Ms De Hollander of 5 December 2005 does go well beyond and raise matters which were not canvassed in the original affidavit. It is to be remembered that in this case the plaintiff is attempting to set aside the statutory demand under the provisions of s 459J(1)(b) of the Corporations Act. That is to say the plaintiff alleges that there is "some other reason why the demand should be set aside". It is not open to the plaintiff to seek to have the demand set aside on the basis that there is a genuine dispute as to the debt. The provisions of the Taxation Administration Act 1953 (Cth) establish the amount of the assessment as a statutory debt recoverable by the Commissioner regardless of whether or not the plaintiff disputes the assessment and irrespective of the merits of the plaintiff's case. That requires that a party relying on s 459J explain the reasons why the demand ought be set aside. To offer in the initial affidavit one reason - the lodging of an objection to the assessment - and to subsequently offer in a further affidavit another reason - a pending appeal - is, to my mind, to put forward two different reasons, one not following on from the other.

16 Accordingly, I would refuse the plaintiff leave to rely on the affidavit of Ms De Hollander of 5 December 2005. That being so, the plaintiff's case depends upon the affidavit of 28 October 2005. That affidavit, when viewed against the background of the affidavits of Mr Kim and Ms Logue, provides no basis at all upon which the statutory demand could be set aside. Accordingly, I would dismiss this application with costs.

17 Lest I be wrong about refusing to admit the affidavit of Ms De Hollander, I should say something about the outcome of the application were the affidavit to be admitted into evidence.

18 Courts have consistently held that a statutory demand can, in certain circumstances, be set aside under s 459J when an assessment is subject to an objection or an appeal. In K W and K M Quinn Investments Pty Ltd v Deputy Commissioner of Taxation [2003] QSC 336, McMurdo J summarised the position as follows (at 4):

"... In an appropriate case, a statutory demand for unpaid income tax can be set aside under s 459J. That was accepted by the Full Court of the Federal Court in Hoare Bros v Commissioner of Taxation (1996) 62 FCR 302 and by numerous decisions of single judges in this and other Supreme Courts: see eg Moutere Pty Ltd v DCT [2000] NSWSC 379; (2000) 34 ACSR 533; Re: Softex Industries Pty Ltd [2001] QSC 377; (2001) 48 ATR 239; Willemse Family Co v DCT [2002] QSC 292; (2002) 51 ATR 92. In Hoare Bros the Full Court apparently endorsed the view of the primary judge (Olney J) that had it been shown that the Commissioner's conduct was unconscionable, was an abuse of process, or had given rise to substantial injustice, the statutory demand would have been set aside. In Moutere, Austin J said that in a case where the assessment was the subject of a due objection, then if the court forms the view that the Commissioner has acted oppressively or unfairly by issuing a statutory demand rather than awaiting the outcome of the objection or taking proceedings for the recovery of the debt, the appropriate course is for the court to set aside the demand. In neither Hoare Bros nor Moutere was the demand set aside, and both the judgment at first instance and upon appeal in Hoare Bros make it clear that the court is not bound to set aside the demand simply because there is a genuine dispute as to the company's underlying liability to income tax which the company was appropriately pursuing by objections and appeals. In Softex, Mullins J set aside a statutory demand where part of the amount demanded was not only the subject of an objection, but was also the subject of a long reserved decision by the Administrative Appeals Tribunal of the company's application for review. In the circumstance that the parties had been awaiting the decision of the Tribunal for several months, her Honour not surprisingly found that it was oppressive for the respondent to serve a statutory demand incorporating the disputed sum ..."

19 In my view, there is nothing in the second affidavit of Ms De Hollander which could lead to the conclusion that the Commissioner's conduct in this case was unconscionable, an abuse of process or gives rise to a substantial injustice. These issues are not addressed in the affidavit material. As McMurdo J makes plain, the mere fact of a dispute, even a genuine dispute, is not sufficient in and of itself to warrant setting aside the statutory demand.

20 Accordingly, even if the affidavit of 5 December 2005 was admitted into evidence, I would still refuse to set aside the statutory demand and dismiss the application with costs.

Administration Act 1953

New Tax System (Goods and Services Tax) Act 1999

Sas02 Pty Ltd v Deputy Commissioner of Taxation of The Commonwealth of Australia [2005] WASC 279

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Sas02 Pty Ltd v Deputy Commissioner of Taxation of The Commonwealth of Australia [2005] WASC 279 (16 December 2005)

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