Shaladis Pty Ltd v Deputy Commissioner of Taxation [2000] QSC 501

Bruce S Dulley Solicitors as town agents for Rea & Sockhill Solicitors for the applicant

[1] ATKINSON J: On 12 September 2000, the respondent, the Deputy Commissioner of Taxation, served on the applicant, Shaladis Pty Ltd ACN 072 432 556 ("Shaladis"), a creditor's statutory demand for payment of debt under s 459E(2)(e) of the Corporations Law. The statutory demand was for $80,531.25 being a debt owing by Shaladis to the Deputy Commissioner of Taxation. The debt is for unpaid income tax for the period from 1 July 1997 to 30 June 2000 together with penalties and interest assessed under the Income Tax Assessment Act 1936 and the Taxation Administration Act 1953. Except for the matters referred to in this judgment, the applicant Shaladis has not asserted that the debt is not due and payable.

[2] Section 459F of the Corporations Law provides that if, after 21 days, the statutory demand is still in effect and the company has not complied with it, the company is taken to have failed to comply with the demand at the end of that period, and may be wound up in insolvency. However, a company may apply to the court under s 459G for an order setting aside a statutory demand served on the company. Such an application may only be made within 21 days after the demand is served. The application to set aside the statutory demand must include an affidavit supporting the application filed within the same 21 days. A copy of the application and a copy of the supporting affidavit must also be served on the person who served the demand on the company within the 21 days.[1] On the determination of an application under 459G the applicant is required to satisfy the court that there is a genuine dispute between the company and the respondent about the existence of the debt to which the demand relates.

[3] On 6 October 2000, the company filed an originating application under s 459G of the Corporations Law seeking to set aside the statutory demand. Also filed and served on that day was an affidavit by John Bowling who swore that he was a director of Shaladis. His affidavit deposes to the following matters which he describes as "facts" but may more properly be considered as submissions of mixed law and fact as to the ground on which the statutory demand should be set aside:

(1) the demand was dependent on decisions imposing penalties under ss 204, 207, 207A and 221AZMAA of the Income Tax Assessment Act 1936 and div 1 part 2A of the Taxation Administration Act 1953;

(2) the power exercised by the Commissioner of Taxation under these sections was exercised contrary to Chapter 3 of the Constitution of the Commonwealth of Australia and the decision of the High Court in Brandy v Human Rights and Equal Opportunity Commission [1995] HCA 10; (1995) 183 CLR 245;

(3) as the Commissioner of Taxation was not appointed under the terms of Chapter 3 of the Constitution, he or she could not exercise the judicial power of the Commonwealth which under s 71 of the Constitution may only be vested in the courts;

(4) the sections of the Income Tax Assessment Act 1936 and the Taxation Administration Act 1953 were therefore invalid; and

(5) the notice of statutory demand was therefore invalid.

[4] However on the hearing of application to set aside the statutory demand the company expressly abandoned this ground and did not rely upon the "material facts" alleged. Rather the applicant argued that, while s 209 of the Income Tax Assessment Act 1936 authorised the Deputy Commissioner to sue for unpaid tax in any court of competent jurisdiction, it did not authorise the Deputy Commissioner to utilise the procedures in s 459E of the Corporations Law to serve a statutory demand for debt.

[5] The respondent objected as a preliminary point to the reception by the court of this additional ground because the facts to support it were not contained in the application or the affidavit filed in support.

[6] An application to set aside a statutory demand is not properly made under s 459G unless, within 21 days after service of the demand, inter alia, an affidavit supporting the application is filed in the court. From 8 September 2000, the rules of court governing applications under the Corporations Law and the ASC Law are found in r 995 and schedule 1A of the Uniform Civil Procedure Rules ("the Corporations Law Rules"). These rules are intended to apply in harmony with similar rules in the Federal Court and other Australian courts and the decisions reached under them should be consistent with decisions in other Australian courts.

[7] Where a proceeding is commenced by an originating application, as in this case, r 2.4(1) of the Corporations Law Rules provides that:

"Unless the court otherwise directs, an originating application. . . must be supported by an affidavit stating the facts in support of the relief claimed."

Rule 2.6 provides that an affidavit must be in a form that complies with -

(b) the rules of the Supreme Court of the State (if any) or Territory (if any) where the affidavit was sworn or affirmed; or

The form of affidavits under the rules of Supreme Court of Queensland is found in r 431 of UCPR.

[8] The minimum requirements of an affidavit in support of an application to set aside a statutory demand are:

(1) it must support, further or assist the company's application to set aside the statutory demand;[2]

(2) it must disclose facts showing there is a genuine dispute between the parties. A mere assertion that there is a genuine dispute is insufficient;[3] and

(3) it must set out facts which will be relied upon at the hearing but it need not contain all the evidence that will be relied upon. It may read more like a pleading.

In this case the affidavit in support did not disclose any facts on which the company relied to argue that there was a genuine dispute as to the debt. The affidavit did not fulfil any of the minimum requirements of an affidavit supporting an application to set aside a statutory demand.

[9] As has been held in many cases, a complying affidavit is a condition of the jurisdiction of the court to set aside a statutory demand.[4] I respectfully agree with Santow J when he held in Calquid Pty Ltd v A&DR Illes Pty Ltd:[5]

". . . there is the jurisdictional matter that the affidavit must be a sufficient explanation of the grounds for concluding that there is a genuine dispute. An affidavit that is fundamentally insufficient cannot be supplemented at a later date, though supplementation to a lesser degree is otherwise possible: Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452; 21 ACSR 581; at 587-8 and Eden Bay Pty Ltd v Bennett & Co (1997) 15 ACLC 1634; at 1638. Thus it must at least contain a statement of the material facts relied upon and if so drafted measure up as if a pleading. . ."

In this case, the affidavit filed in support failed to fulfil the jurisdictional criterion. Without such an affidavit there was no complying application to set aside the statutory demand before the court.

[10] If an applicant has a complete legal defence to a statutory demand which does not require the filing of any further affidavit setting out material facts, however, then an applicant ought to able to raise that argument on the hearing of the application to set aside a statutory demand even if that ground has not been referred to in the application or the affidavit filed within time so long as there is a complying affidavit filed within time.

[11] Even if the court had jurisdiction to hear the application, in my view it would fail in any event. The ground for setting aside the statutory demand raised for the first time at the hearing that, because of s 209 of the Income Tax Assessment Act 1936, the Deputy Commissioner of Taxation is precluded from relying on s 459E of the Corporations Law, is entirely without merit.

[12] Section 209 of the Income Tax Assessment Act 1936 provides with regard to a tax liability incurred before 1 July 2000:

(1) Any tax unpaid may be used for and recovered in any Court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name.

(2) In subsection (1), `tax' includes the general interest charge under a provision of this Act and additional tax under Part VII."

[13] Section 209 gives the Deputy Commissioner the power to recover unpaid tax in addition to the power to sue for unpaid tax. There is no valid reason in logic to limit the meaning of "recover" to a situation where there is a judgment debt. There is no authority that there is any such limitation on the term.[6] Rather authority is to the contrary. Williams J in Bluehaven Transport Pty Ltd v Deputy Commissioner of Taxation,[7] after carefully reviewing the authorities and the practice of the courts over many years, concluded:[8]

"In my view the term `recover' in s 209 should be given the wide meaning ascribed to it in the authorities to which I have referred. It is not limited, as contended for by counsel for the applicant, to some recovery process consequent upon a judgment having been obtained. In other words, the Commissioner does not have to sue the taxpayer to judgment before he can `recover' the unpaid tax. The power to `recover' unpaid tax entitles the Commissioner to obtain satisfaction of the debt through any available legal proceedings. Payment consequent upon winding up proceedings is obtaining satisfaction in a permissible legal manner."

[14] Service of a statutory demand may be used to recover an undisputed debt particularly from an insolvent company[9] and so falls within the powers conferred by s 209 of the Income Tax Assessment Act 1936. Indeed in one of the authorities relied on by the applicant, Hutchins v Deputy Commissioner of Taxation,[10] Lockhart J listed a number of ways of recovering unpaid tax including "extra curial means such as proving in the estates of bankrupt taxpayers". A creditor may prove in the estate of a bankrupt person without having a judgment debt.

[15] As the company failed to file and serve a supporting affidavit and there is no merit in the ground relied upon and therefore no genuine dispute about the existence or amount of the debt, the application should be dismissed with costs.

[1] Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452 at 455, 459.

[2] Graywinter (supra) at 459; Zenaust Imports Pty Ltd v Alembic Chemicals Works Co Ltd (1998) 28 ACSR 465.

[4] Graywinter (supra) at 459; Zenaust (supra) at 466-467.

[5] [2000] NSWSC 558; (2000) 34 ACSR 523 at 531.

[6] In Kalis Nominees Pty Ltd v DFC of T (1995) 95 ATC 4519 at 4523, Olney J resolved earlier doubts he had expressed in Hoare Bros Pty Ltd v DFC of T (1995) ATC 4156 at 4162-4163.

[7] [2000] QSC 268; SC No 5070 of 2000, 11 July 2000.

[9] cf Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 61; [1994] 2 VR 290.

[10] (1996) 65 FCR 269 at 276.