Canberra Cleaners Pty Ltd v Commissioner for Act Revenue (No. 3)
[2017] ACTSC 340
•14 November 2017
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Canberra Cleaners Pty Ltd v Commissioner for ACT Revenue (No. 3) |
Citation: | [2017] ACTSC 340 |
Hearing Dates: | 9 – 10 November 2017 |
DecisionDate: | 14 November 2017 |
Before: | McWilliam AsJ |
Decision: | See [41] |
Catchwords: | PRACTICE AND PROCEDURE – application for stay of operation of garnishee notices – whether serious question to be tried – whether balance of convenience favours injunctive relief |
Legislation Cited: | Administrative Decisions (Judicial Review) Act 1977 (Cth) s 15 |
Cases Cited: | Atarashii Stone Pty Ltd v Granite Transformations Pty Ltd [2017] ACTSC 116 Australian Broadcasting Corporation v O’Neill [2006] HCA 46; 227 CLR 57 Beecham Group Ltd v Bristol Laboratories Pty Ltd(1968) 118 CLR 618 Edelston v Wilcox (1988) 83 ALR 99 Financial Integrity Group Pty Ltd v Farmer (No 3) [2014] ACTSC 75 Murphy v Lush (1986) 65 ALR 651 Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 Southgate Investment Funds Ltd and Others v Deputy Commissioner of Taxation [2013] FCAFC 10; 211 FCR 274 |
Parties: | Canberra Cleaners Pty Ltd (ACN 142 575 095) (First Plaintiff) Phillip Arcidiacono trading as Rose Cleaning Service (ABN 28 057 543 242) (Second Plaintiff) Rose Cleaning Asset Services Pty Ltd (ACN 607 365 506) (Third Plaintiff) Commissioner for ACT Revenue (Defendant) |
Representation: | Counsel D McGovern SC with S Lees (Plaintiffs) P Walker SC with WBD Buckland (Defendant) |
| Solicitors McEvoy Legal (Plaintiffs) ACT Government Solicitor (Defendant) | |
File Number: | SC 424 of 2017 |
This interlocutory application is made in the context of judicial review proceedings brought by the plaintiffs, with each having been assessed by the Commissioner for ACT Revenue (Commissioner) as part of a group that has outstanding payroll tax liabilities.
Pursuant to s 54 of the Taxation Administration Act 1999 (ACT), the Commissioner has sought to recover the tax assessed as owing through issuing a number of notices dated 18 and 19 October 2017 to customers or clients of the plaintiffs, which are set out in a schedule to an Amended Originating Application filed 10 November 2017 (garnishee notices).
The plaintiffs seek to set aside the garnishee notices on a number of grounds, with the matter having now been listed for hearing of the substantive issue on an expedited basis, pursuant to r 1311 of the Court Procedures Rules 2006 (ACT) (Rules), in December 2017.
Part of the relief sought is that the requirement to comply with the garnishee notices be stayed pursuant to s 16 of the Administrative Decisions (Judicial Review) Act 1989 (ACT) (ADJR Act), pending final determination of the review of the underlying liabilities or until further order. However, the relief sought in the present application has properly been limited to a stay of the operation of the garnishee notices pending resolution of these judicial review proceedings.
As submitted by the plaintiffs, the Court also has the power to grant a stay pursuant to s 30 of the Supreme Court Act 1933 (ACT).
The application for the stay of the operation of the garnishee notices was heard on an urgent basis because the first and third plaintiffs, who are still trading, are due to receive moneys from certain creditors in the coming week. The first and third plaintiffs say that if those moneys are diverted to the Commissioner under the garnishee notices, rather than being utilised to pay the expenses of the first and third plaintiffs, they will become insolvent and be wound up before the substantive application can be heard and determined, rendering the entire proceedings futile.
Principles governing the exercise of discretion whether to grant injunctive relief
The Commonwealth statutory equivalent of s 16 of the ADJR Act is s 15(1) of the Administrative Decisions (Judicial Review) Act 1977 (Cth).
In the context of that statute, the authorities have stated that the proper test is the same as that applied on an interlocutory application for injunctive relief: Malek Fahd Islamic School Limited v Minister for Education and Training [2017] FCA 757 per Griffiths J at [54]; Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 per French J (as he then was) at [131].
In this Court, the principles have been recently restated in Atarashii Stone Pty Ltd v Granite Transformations Pty Ltd [2017] ACTSC 116 (Atarashii)per Murrell CJ at [10]. They are consistent with, among other authorities, Australian Broadcasting Corporation v O’Neill [2006] HCA 46; 227 CLR 57 (O’Neill) at [65]; Murphy v Lush (1986) 65 ALR 651 at 652; and Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1 at [21].
The Court is required to consider first, whether there is a serious question to be tried in the sense that there is a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo. Those words do not mean that the Court is required to form the view at this preliminary stage that the proceedings are ultimately likely to be successful. The Court considers the likelihood of success in the context of being sufficient to warrant the preservation of the status quo in the circumstances of the case presently before the Court: O’Neill at [19] and [65]-[72]; Beecham Group Ltd v Bristol Laboratories Pty Ltd(1968) 118 CLR 618 at 622-623; Shercliff v Engadine Acceptance Corp Pty Ltd[1978] 1 NSWLR 729 at 737.
Second, the Court considers whether the balance of convenience favours the grant of injunctive relief. As part of that consideration, the Court will have regard to factors such as whether damages are an adequate remedy, the right to a livelihood, delay, impact on third parties, the strength of the plaintiffs’ case and any undertakings that have been given: Willis Australia Group Services Pty Ltd v Griggs [2012] NSWSC 659; 222 IR 172 at [133], cited in Atarashii at [12].
Senior Counsel for the Commissioner urged the Court to adopt further criteria which may apply in determining whether or not the execution of a judgment debt based upon a taxation assessment should be stayed. The criteria were set out in the judgment of Southgate Investment Funds Ltd and Others v Deputy Commissioner of Taxation [2013] FCAFC 10; 211 FCR 274 at [77]. In particular, the Commissioner’s position was that great weight must be given to the clear legislative policy which gives priority to the recovery of taxation revenue notwithstanding there may be objection proceedings on foot. The defendant also submitted that irrespective of the merits of the pending proceedings, the Court ought not grant a stay where the taxpayer is party to a contrivance to avoid liability to pay the tax.
Noting that the Court’s discretion remains unfettered in terms of factors that may be relevant, I accept the submissions of the plaintiffs that those principles are not the governing principles for the exercise of the discretion in considering whether to stay the operation of garnishee orders in judicial review proceedings.
There is a substantive distinction between proceedings concerning a judgment debt arising from a tax assessment, and the present judicial review proceedings concerning the validity of garnishee orders issued to third parties. The ultimate relief sought in these proceedings by its very nature is limited to public law remedies that do not touch upon the underlying merit of any taxation assessment. Whether the taxpayer was party to a contrivance to avoid paying the taxation debt in the first place is a matter entirely separate to the conduct of a decision-maker issuing a garnishee notice, which is the conduct under scrutiny in these proceedings.
There is a further reason why I do not accept the Commissioner’s submission as to the applicable principles being other than those set out above in relation to the established authorities for injunctive relief. The effect of the Commissioner’s submission would be that the principles applicable to the exercise of the Court’s discretion under s 16 of the ADJR Act would vary depending on whether the Commissioner (or a delegate of the Commissioner) was involved as the decision-maker. That, to my mind, would be inconsistent with the proper application of the rule of law, in that the discretion under s 16 of the ADJR Act ought be exercised in the same manner, and by reference to the same principles, regardless of the identity of a party. Similar reasoning was expressed in the context of applying principles on costs by McHugh J in Oshlack v Richmond River Council(1998) 193 CLR 72 at [92].
A separate matter relevant to the exercise of the Court’s discretion is the application of Division 2.9.4 of the Rules when granting injunctive relief, which as the above authorities indicate is in substance what is being sought, albeit under s 16 of the ADJR Act. Rule 732 provides that unless there is a good reason, an order for interlocutory injunctive relief pending the hearing must not be made without the usual undertaking as to damages (defined in r 700) being given. Rule 733 provides for the Court to require an undertaking from a person approved by the court other than the person applying for injunctive relief (such as a director of a corporate plaintiff, where the corporate entity has disclosed financial difficulty).
Evidence on the interlocutory application
The evidence before the Court, both for the first and third plaintiffs and the defendant, was substantial for what was seemingly a straightforward interlocutory dispute on established principles.
A number of affidavits were read from the directors of each of the plaintiffs, none of which were sought to be cross-examined. Ms Sue Price, one of the directors of the first plaintiff, deposes to operating the cleaning business through a labour hire company. Her sworn evidence was that the garnishee notices issued to the clients of the first plaintiff cover the entirety of the first plaintiffs’ income. The monthly gross income is approximately $296,000.
If the garnishee notices continue, the first plaintiff will cease to trade and will be forced into liquidation. As at 1 November 2017, Ms Price deposed to the first plaintiff not being able to remain in business for longer than a fortnight if the operation of the garnishee notices were not stayed.
Mr Olsen is the sole director of the third plaintiff, deposing to a gross monthly income of approximately $37,000 and his evidence as to the effect of the garnishee notices was also that if they were not stayed, the third plaintiff would become insolvent in a matter of weeks.
Mr Arcidiacono for the second plaintiff also swore an affidavit in previous proceedings which was read on the stay application, but which was of less relevance given that the second plaintiff is no longer trading.
None of the directors proffered the usual undertaking as to damages. The evidence appeared to indicate that the financial positions of the corporate plaintiffs, and to some extent of the directors personally, were such that there was no present ability to have recourse to other additional funds through loans or otherwise.
The current solicitor for the plaintiffs has filed an affidavit setting out part of the financial position of the plaintiffs. Further evidence as to the financial position of the plaintiffs is to be found in a forensic accountant’s report dated 28 August 2017 which gives an opinion that the first plaintiff is likely to generate an average cash flow surplus of approximately $17,000 per month and that the forecasted monthly average surplus for the third plaintiff is approximately $11,000.
An updating report of RSM Australia Partners dated 10 May 2017, prepared in its capacity as receiver in respect of a number of nominated bank accounts, was also before the Court. It is broadly consistent in its opinion that the average monthly profit for the first plaintiff was estimated to be approximately $19,933.
However, the most recent figures provided by the directors are that the first plaintiff is generating almost no profit and the third plaintiff is currently making a monthly loss of approximately $2,000.
The Commissioner points to substantial assets referred to in the forensic accountant’s report. Relying in part on the affidavit of the decision-maker whose decisions are under challenge in the substantive proceedings, the Commissioner submitted that there ought be real doubt about the veracity of any claim to potential insolvency, in light of the fact that the labour hire company responsible for contracting the workers that are said to be owed wages and long service leave was not independent from the directors of the first and third plaintiffs. It was submitted that the plaintiffs have been conducting their affairs so that when it suits them, their business expenses dramatically increase.
There were also two affidavits relied upon by the Commissioner from clients of the plaintiffs, although having considered their contents they appear directed to rebutting claims made by the plaintiffs and do not really address the matters that are of material concern on the interlocutory application.
A serious question to be tried
There was no dispute that there is a serious question to be tried in the judicial review proceedings. The Amended Originating Application that was filed raises grounds of a failure to take into account relevant considerations, lack of power, and uncertain, incorrect, misleading or confusing contents of the garnishee notices. The submissions appear to make further arguments based on unreasonableness and a denial of natural justice although these arguments have not apparently been included in the most recent iteration of the application.
Balance of convenience
If the stay were to be granted, there is likely to be real prejudice to the Commissioner. The unpaid taxation debt and consequent amounts payable under the garnishee notices is substantial, running to millions of dollars once the penalty tax and interest claimed are taken into account. Given the precarious financial position of the plaintiffs, moneys that are paid to the plaintiffs and spent on the operating expenses are unlikely to be recovered.
In the plaintiffs’ favour, there has been no delay in applying for the interlocutory relief or in commencing proceedings. Further, the plaintiffs were in a position to agree to an early hearing, with a view to minimising the prejudice to the Commissioner.
The strength of the plaintiffs’ claim is also relevant to the overall consideration of where the balance of convenience lies. In making one of their arguments, the plaintiffs rely upon the decision of Edelston v Wilcox (1988) 83 ALR 99, to submit that in issuing the garnishee notices, the decision-maker failed to consider that their effect was to seize the entirety of the first and third plaintiffs’ income and to prevent even the payment of operating expenses. The plaintiffs submit further that the argument is strong and considerable time during the hearing was devoted to arguments about the strength of the plaintiffs’ overall case by reference to various other grounds.
The defendant unsurprisingly disputed the strength of the arguments sought to be agitated at the final hearing. The Commissioner submits that the strength of a plaintiffs’ claim does not overwhelm all other considerations in resolving the question of whether a stay should be granted.
Having considered the contents of the garnishee notices in evidence, and the authorities supporting the plaintiffs’ submissions, I do consider that the grounds raised are more than fairly arguable. The contents of the notices contain what might be described as, at the very least, ambiguous statements about previous invalid notices and applying credits for previous payments made. Whether this sounds in legal error affecting the validity of the notices will be a matter for final hearing.
However, I also accept the Commissioner’s submission that the strength of the case alone is not determinative and does not overwhelm all other considerations.
The most critical factor operating in the present case is that, on the unchallenged affidavit evidence of the plaintiffs, damages will not be an adequate remedy. In this regard, historical accounting reports, and the opinion of a compliance officer that there is a high degree of uncertainty about the accuracy and reliability of the records of the plaintiffs and their financial position, do not outweigh the sworn testimony of the directors of the plaintiffs. The first and third plaintiffs are likely to cease to exist without a stay of the operation of the garnishee notices and will be unable to prosecute the judicial review proceedings that I have found to have merit.
The related issue is that the proceedings will be rendered futile if the garnishee notices continue to operate while the proceedings are heard and determined – the payment of funds to the Commissioner under the most recent garnishee notices is precisely the outcome the plaintiffs seek to prevent.
Similarly, the plaintiffs’ right to a livelihood while the proceedings are extant is also relevant to the balance of convenience. The evidence is that the operation of the garnishee notices under challenge completely deprives the plaintiffs of any income.
I am concerned about the lack of any undertaking as to damages by any of the plaintiffs, and in particular the first and/or third plaintiffs, given that they are the parties moving for urgent interlocutory relief. It would be rare to grant a stay without requiring some form of undertaking or security: see Financial Integrity Group Pty Ltd v Farmer (No 3) [2014] ACTSC 75 (Financial Integrity) at [16(iii)] and the cases there-cited. I have assumed the obvious reason is that on the estimated monthly figures, the plaintiffs simply cannot afford to undertake to pay the approximately $300,000 in lost revenue to the Commissioner during the next month in the event that they do not succeed in these proceedings. However, the directors of the plaintiffs (or any one or more of them), through whom the plaintiffs act in bringing the proceedings, ought be prepared to stand behind the plaintiffs as the price of obtaining the stay: see Financial Integrity at [16]. The evidence did not go so far as to suggest that the individual directors would not be in any position to meet the undertaking, were it ultimately to be called upon.
Taking into account the above considerations, the balance of convenience lies with staying the operation of the garnishee notices for the relatively short period until the hearing and its final determination, subject to the plaintiffs or one or more of their directors personally (pursuant to r 733) giving an undertaking as to damages. I emphasise that the Court is not compelling any such undertaking. Rather, if the directors of the plaintiffs are unwilling or unable to provide the usual undertaking, then the stay of the garnishee notices will simply not come into effect.
The costs of the application ought be paid on the usual basis that costs follow the event.
Orders
The Orders of the Court will be:
1.Subject to the conditions in orders 2 and 3, the operation of the following garnishee notices are suspended until the final determination of the plaintiffs’ application in this proceeding:
a.Notice dated 18 October 2017 to Calvary Health Care ACT Limited (ACN 105 304 989);
b.Notice dated 18 October 2017 to Commonwealth Bank of Australia (ACN 123 123 134);
c.Notice dated 19 October 2017 to Canberra Grammar School (ACN 684 026 062);
d.Notice dated 19 October 2017 to Tuggeranong Valley Rugby Union & Sports Club Limited (ACN 098 763 314);
e.Notice dated 19 October 2017 to Veolia Environmental Services (Australia) Pty Ltd (ACN 051 316 584); and
f.Notice dated 31 October 2017 to Tuggeranong Valley Rugby Union & Sports Club Limited (ACN 098 763 314).
2.Any amounts received by the plaintiffs under their respective cleaning contracts must only be applied in the discharge of outstanding business expenses incurred in the ordinary course of carrying on their businesses.
3.The plaintiffs or any one or more directors of the plaintiffs are to communicate their agreement to proffer the usual undertaking as to damages by 5pm on 14 November 2017.
4.The defendant is to pay the first and third plaintiffs’ costs of the interlocutory application, such costs not to be recoverable until the conclusion of the proceedings.
| I certify that the preceding forty-one [41] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Associate Justice McWilliam Associate: Date: |
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