Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation
[2005] ACTCA 3
ARCADE BADGE EMBROIDERY CO PTY LTD v DEPUTY COMMISSIONER OF TAXATION [2005] ACTCA 3 (21 February 2005)
CORPORATIONS – statutory demand – application to set aside demand – minimum requirements of supporting affidavit – setting statutory demand aside “on other grounds”.
Corporations Act 2001 (Cth)
Greenway Hotel Pty Ltd v Parton [2004] ACTCA 13
Jian Xing Knitting Factory v SCASA Pty Limited [2004] SASC 152
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452
Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 80 FCR 295
Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302
Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151
EX TEMPORE JUDGMENT
ON APPEAL FROM THE MASTER OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
No. ACTCA 41 - 2003
No. SC of 668 of 2003
Judges: Crispin P, Gray and Marshall JJ
Court of Appeal of the Australian Capital Territory
Date: 21 February 2005
IN THE SUPREME COURT OF THE ) No. ACTSC 41 - 2003
) No. SC of 668 of 2003
AUSTRALIAN CAPITAL TERRITORY )
)
COURT OF APPEAL )
ON APPEAL FROM THE MASTER OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:ARCADE BADGE EMBROIDERY CO PTY LIMITED
Appellant
AND:DEPUTY COMMISSIONER OF TAXATION
Respondent
ORDER
Judges: Crispin P, Gray and Marshall JJ
Date: 21 February 2005
Place: Canberra
THE COURT ORDERS THAT:
appeal be allowed;
the order of the Master be set aside;
the statutory demand be set aside pursuant to s 459J(1)(b);
the respondent pays the appellant’s costs of the appeal and costs before the Master.
IN THE SUPREME COURT OF THE ) No. ACTSC 41 - 2003
) No. SC of 668 of 2003
AUSTRALIAN CAPITAL TERRITORY )
)
COURT OF APPEAL )
ON APPEAL FROM THE MASTER OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:ARCADE BADGE EMBROIDERY CO PTY LIMITED
Appellant
AND:DEPUTY COMMISSIONER OF TAXATION
Respondent
Judges: Crispin P, Gray and Marshall JJ
Date: 21 February 2005
Place: Canberra
REASONS FOR JUDGMENT
THE COURT:
This is an appeal from a judgment of Master Harper. In the judgment appealed from, the Master refused to set aside a statutory demand. The respondent served the statutory demand pursuant to s 459E of the Corporations Act 2001 (Cth) (“the Act”).
Section 459E of the Act enables a creditor to serve on a debtor company a demand, with respect to debts owed by the debtor to the creditor.
Under s 459G(1) of the Act a debtor company served with a statutory demand under s 459E may apply to the Supreme Court of the Australian Capital Territory, amongst other courts, for an order to set the statutory demand aside.
Such an application must be made within 21 days after the service of the statutory demand (s 459G(2)). The application is required to be supported by a supporting affidavit, which is to be filed with the Court and served on the creditor (s 459G(3)).
The affidavit filed with the application of the appellant was affirmed by its solicitor, Mr Powrie. The affidavit asserted that there is a genuine dispute between the appellant and the respondent about the existence of the debt to which the demand relates. In addition to this assertion the affidavit also stated that: “ … the matter is currently subject to government review”.
The expression “government review” was a reference to an extant request of the appellant to the Minister for Finance and Administration for waiver of the debt.
In Greenway Hotel Pty Ltd v Parton [2004] ACTCA 13, 14 July 2004, the Court of Appeal at [44] noted that an affidavit filed in the application must support the application. At [45] the Court referred to the four grounds which, if made out, could lead to the setting aside of a statutory demand. Those grounds are:
(1)there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates: s 459H(1)(a);
(2)the company has an offsetting claim: s 459H(1)(b);
(3)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside: s 459J(1)(a);
(4)there is some other reason why the demand should be set aside: s 459J(1)(b).
Paragraph 3 of the affidavit of Mr Powrie of 7 October 2003 stated that:
The directors of the applicant instruct me, and I verily believe that there is a genuine dispute about any debt owed to the defendant and the matter is currently subject to government review.
That paragraph raises the first and the fourth grounds mentioned in Greenway Hotel. But are those grounds raised in such a way so that it might be said that the affidavit supports the application?
At [47] in Greenway Hotel, the Court said:
Section 459G(3)(b) requires the filing of an affidavit supporting the application. To merely state which ground is relied upon would not comply with the subsection.
Paragraph 3 of Mr Powrie’s affidavit of 7 October 2003 states a ground relied upon, that is, that there is a genuine dispute about the debt.
At [48] and [49] in Greenway Hotel the Court said:
If the ground relied upon is that there is a genuine dispute between the company and the respondent the affidavit should state that to be the ground. But the affidavit needs to go further. It would not comply with the subsection if it merely asserted that a dispute existed: Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452. That is so because the affidavit would not support the application. Otherwise, the affidavit would be doing no more than restating the ground of the application.
In Graywinter, Sundberg J considered the ‘minimum content’ for an affidavit to be a supporting affidavit. He said (at 459) -
In order to be a “supporting affidavit”, an affidavit must say something that promotes the company’s case. An affidavit which merely says “I am a director of the company but am too busy at present to make a full affidavit, and I will do so later” would not support the application. It would in no way advance, further or assist the company’s cause, which is to have the notice set aside. At the other extreme, the affidavit need not detail, in admissible form, all the evidence that supports the contention of a genuine dispute: John Holland. That evidence must be available at the hearing of the application to set aside, because that application is for final and not interlocutory relief: 71 Paisley Street.
Did the additional words “the matter is currently subject to a government review” say something that promotes the appellant’s case?
These words are capable of bearing a meaning to the effect that the liability of the respondent to pay the debt is subject to a review process. To that extent those words went further than merely restating the ground of the application, they said something that promoted the appellant’s case. There will be a genuine dispute as to the existence of the debt if it is waived as a result of “a government review”.
At [18] in his judgment below, the Master said:
It seems to me that Mr Powrie’s affidavit of 7 October 2003 is not capable of satisfying a court, for the purposes of subsection 459H(1), that there is a genuine dispute between the company and the respondent about the existence or amount of the debt to which the demand relates. The affidavit amounts to no more than a mere assertion by a solicitor that the debt is disputed. Mr Powrie was instructed in the matter less than three weeks earlier and does not assert that he has any personal knowledge grounding his belief. It must follow that the affidavit is inadequate to meet the requirements for an affidavit supporting the application within subsection 459G(3).
In our opinion the 7 October 2003 affidavit did not make a mere assertion that there is a genuine dispute or a bare claim that the debt is disputed. It went further and claimed, in effect, that the controversy was up for review in another forum.
It follows that we consider the appellant to have complied with the minimum requirements of s 459G, allowing it to later adduce further evidence in support of the claim that there was a genuine dispute having regard to a “government review”. We therefore consider, contrary to the view of the Master, that the 7 October 2003 affidavit constituted a valid affidavit in support of an application for relief under s 459G of the Act and gave the Court jurisdiction to make an order setting aside the statutory demand.
Mr Powrie affirmed a further affidavit on 6 November 2003. That affidavit, at par 4, referred to the appellant having made “representations to the Federal Government to waive the debt which is the subject of the current Statutory Demand”.
The affidavit also recounts conversations with a representative of the respondent in which the respondent agreed to withdraw the statutory demand. As Doyle CJ of the Supreme Court of South Australia said in Jian Xing Knitting Factory v SCASA Pty Ltd [2004] SASC 152 at [18] 28 May 2004:
The court can act on supplementary affidavits filed outside the 21 day period that expand on the grounds raised in an affidavit filed within the 21 days, but the court cannot act on new grounds raised by an affidavit filed outside the 21 day period: Energy Equity Corporation v Sinedie Pty Ltd (2001) 166 FLR 179 …
Paragraph 4 of the 6 November 2003 affidavit expands on the issue of “government review” referred to in the 7 October 2003 affidavit by describing the nature of the review. In that way it did not seek to raise any new ground not previously identified in the earlier affidavit.
It follows that we disagree with the Master’s characterisation of the second affidavit of Mr Powrie at [20] as saying “nothing more” which could “satisfy a court that there is a genuine dispute between the company and the respondent about the existence or amount of the debt”.
The Master considered whether, in the event that he was in error in concluding that the 7 October 2003 affidavit did not meet the requirements of s 459G(3), he should exercise his power under s 459J to set aside the statutory demand. The Master noted that the appellant relied solely on s 459J and not on s 459H.
Section 459H can be availed of where the Court is satisfied as to the existence of a genuine dispute about the debt or its amount or that the debtor has an offsetting claim. Section 459J(1) provides:
On an application under s 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice would be caused unless the demand is set aside; or
(b)there is some other reason why the demand should be set aside.
The appellant relied on s 459J(1)(b).
As a Full Court of the Federal Court said in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 459, the ‘other reason’ referred to in s 459J(1)(b) must be a reason other than a defect in the demand.
Accordingly, what the appellant must put in evidence is conduct on the part of the respondent, or circumstances, which enliven the Court’s discretionary power but which do not relate to a defect in the demand itself. That the conduct of the respondent is productive of substantial injustice may be a powerful ground for exercising the discretion: Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 80 FCR 295 at 300. However, it is not a necessary element for granting relief under s 459J(1)(b).
What is contemplated by s 459J(1)(b) is a discretion of broad compass which extends to conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice: Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 at 317 to 318.
The discussions between Mr Powrie and representatives of the respondent referred to in the 6 November 2003 affidavit and accepted by the Master (in circumstances where it was open to him to so find) show that:
·The Department of Finance and Administration and the relevant Minister, Mr Slipper, had the request for waiver of the debts under consideration.
·The respondent agreed to withdraw the statutory demand, issued 18 September 2003, and give the appellant a “one month moratorium”. This was agreed to in a telephone conversation of 26 September 2003 and confirmed on 14 October 2003.
·The respondent reneged on its agreement to withdraw the statutory demand.
It is necessary to note that as at 16 October 2003 the Minister had invited the appellant to submit further information in support of its claim for waiver.
In these circumstances, where the respondent has failed to make good its representation that it would withdraw the statutory demand, it is appropriate that we exercise our discretion in favour of the appellant. In so doing, we acknowledge that a substantial injustice would otherwise arise as a result of the respondent being able to renege on its agreement with the appellant to withdraw the statutory demand. This is especially so given that the appellant was entitled to expect that the respondent, as a manifestation of the Crown, would observe the highest standards in its dealings with the appellant: Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 at 196 to 197. Additionally the Taxpayer’s Charter produced by the respondent specifically states that subjects can expect to be treated fairly and reasonably and to receive reliable advice and information.
We note that in written submissions, the respondent challenged the finding of the Master that there was an agreement between Mr Powrie and a representative of the respondent, that the statutory demand would be withdrawn. These submissions were repeated orally this morning. However, it is our view that this conclusion of fact was open to the Master and should not be disturbed on the appeal, especially in circumstances where the affidavit evidence on which it was based was not challenged by cross-examination.
We note that the statutory scheme established by Pt 5.4 of the Act does not prevent the respondent from issuing a fresh statutory demand to the appellant in the future.
It matters little that the appellant did not challenge the amount of the debt or the fact that it would be due, if not waived. There were strong and powerful reasons for the Court to make an order under s 459J(1)(b) in the interests of justice but it did not do so.
For those reasons we consider that the Master erred in holding that there was no adequate reason to set aside the statutory demand under s 459J(1)(b). In our view the application should have been allowed.
We leave for another day issues relating to the nature and extent of the Court’s powers to prevent injustice in circumstances where a representation by a creditor has induced a company not to apply at all to set aside the statutory demand within the 21 day time limit.
We will order that the appeal be allowed, the order of the Master set aside, the statutory demand be set aside pursuant to s 459J(1)(b) and that the respondent pay the appellant’s costs of the appeal and costs before the Master.
I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court
Associate:
Date: March 2005
Counsel for the Appellant: Mr A Powrie
Solicitor for the Appellant: Powrie & Co
Counsel for the Respondent: Mr R Vivekananda
Solicitor for the Respondent: Australian Government Solicitor
Date of hearing: 21 February 2005
Date of judgment: 21 February 2005
56
8
0