Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd & Ors
[2008] HCATrans 244
•17 June 2008
[2008] HCATrans 244
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Brisbane No B10 of 2008
B e t w e e n -
DEPUTY COMMISSIONER OF TAXATION
Applicant
and
BROADBEACH PROPERTIES PTY LTD
Respondent
Office of the Registry
Brisbane No B11 of 2008
B e t w e e n -
DEPUTY COMMISSIONER OF TAXATION
Applicant
and
MA HOWARD RACING PTY LTD
Respondent
Office of the Registry
Brisbane No B12 of 2008
B e t w e e n -
DEPUTY COMMISSIONER OF TAXATION
Applicant
and
NEUTRAL BAY PTY LTD
Respondent
GUMMOW ACJ
KIRBY J
HEYDON J
CRENNAN J
KIEFEL J
TRANSCRIPT OF PROCEEDINGS
AT BRISBANE ON TUESDAY, 17 JUNE 2008, AT 9.57 AM
(Continued from 16/6/08)
Copyright in the High Court of Australia
__________________
GUMMOW ACJ: Yes, Mr Williams.
MR WILLIAMS: Yes, thank you, your Honour. Your Honour, the basic submission that the Commissioner puts is that the legal incidence of the debt created by tax legislation are fundamental to the application of the Companies Act provisions to such debts.
It is a critical aspect of such a debt that the debtor has no defence to an action in debt based upon the notice that the debtor cannot plead in such a proceeding that the assessment is excessive or that the money is not truly owed, and that flows from the operation of 14ZZM and, before that, section 209 of the ITAA.
KIRBY J: Is section 177 important for that basal submission or not?
MR WILLIAMS: It may not be completely critical, but it certainly reinforces the position that the debt which is created by service of the notice is conclusive in all respects, but the debt is created in any event, as is reinforced by the case that your Honour the Acting Chief Justice drew attention to yesterday, the SCI decision. The Companies Act itself provides that a judgment returned unsatisfied expressly raises a presumption of insolvency.
GUMMOW ACJ: Yes, what provision is that?
MR WILLIAMS: That is 459C(2)(b). That is to be found in the respondent’s bundle of the legislation, the smaller of the white bundles, at tab 1. It is on the first page.
GUMMOW ACJ: Yes, paragraph (b).
MR WILLIAMS: I am sorry, paragraph (b). Yes, I should have said paragraph (b).
GUMMOW ACJ: Of section 459C(2)?
MR WILLIAMS: Yes, that is so. But equally the Commissioner could sue to judgment in debt and then serve a demand based on the judgment under paragraph (a) of 459C. Therefore, if before judgment one knows with certainty that judgment will be obtained, and one does know that by reason of the legal incidence of the tax debt in question, and one knows with certainty that any appeal against that judgment in debt would fail, there cannot be a genuine dispute about the existence or amount of the debt. There is no reason of policy to force the Commissioner to vex the courts with actions in debt when there is a direct statutory mechanism available.
Your Honour Justice Crennan yesterday raised the cases or the question of the cases considering the policy behind the tax enforcement scheme and its operation, particularly 14ZZM. We have provided to the Court and our friends this morning the decision in Deputy Federal Commissioner of Taxation v Roma Industries (1976) 6 ATR 54. It is a judgment of Sir Nigel Bowen sitting as Chief Judge in Equity. The facts appear at the top of page 55 about the first 15 lines. It was a petition for the winding up of the company. There was the equivalent of a Part IVC proceeding on foot and it had not been heard, and it appeared that some substantial time – this is at about line 14 – would elapse before the tax appeal was heard. His Honour then refers to section 201, which is, of course, the antecedent to 14ZZM. Then at line 20:
Notwithstanding the assessments are under appeal, the amounts in question are due and payable, and could be successfully sued for by the Commissioner in a court of competent jurisdiction; the existence of the appeal would not be a defence.
Then on page 56 about point 4 is the argument that Mr Hely put for the Commissioner in that case, beginning with:
Counsel for the Commissioner submits that this is not a “dispute” case –
We read that paragraph and the short one that follows it through to the word “treated as a valid one”. Then on page 57 from about line 10 his Honour’s consideration of the issues is set out. We read that paragraph through to the last full paragraph on the page, but before doing so, call attention at about line 19 to the reference to the position that then pertained that the Commissioner was not obliged to pay interest on an amount when forced to repay it. That is, of course, not now presently the position, but we read from line 10 to about line 50.
GUMMOW ACJ: What is the present system for interest; interest determined by what principles as to rate?
MR WILLIAMS: There is a provision for payment of interest. I will need to ‑ ‑ ‑
GUMMOW ACJ: Come to it in due course.
MR WILLIAMS: Yes, I will, your Honour.
CRENNAN J: There is an Act, is there not, Taxation (Interest on Overpayments and Early Payments) Act 1983?
MR WILLIAMS: I believe that that is the Act that governs it, your Honour.
GUMMOW ACJ: You were at page 57 of Roma.
MR WILLIAMS: Yes, we read the entirety of 57 from 10 to line 50, your Honours. We emphasise at about lines 20 to 25 the formulation for the rationale that your Honour Justice Crennan identified as one of the rationales yesterday, perhaps in a slightly narrower form. That is a statement of what we submit was settled wisdom on these provisions at the relevant time.
Your Honour Justice Kirby asked yesterday about the explanatory memorandum to the Corporate Law Reform Bill 1992 that introduced these changes. We have provided that to the Court along with the second reading speech this morning. If I can take your Honour very briefly to the key provisions. There are other references, but for economy of time I will focus on the key references. Paragraph 670, there are multiple statements to the effect that the Bill broadly implements the Harmer Report. In paragraphs 669 to 670 the proposals concerning statutory demands, introduced, as it were; there is earlier reference. Then there is detailed consideration at 685 of the provisions in ‑ ‑ ‑
KIRBY J: What did they mean by 669:
overcomes the inflexibility imposed by the present law by allowing the Court to be more responsive to commercial realities.
MR WILLIAMS: Your Honour, we take that to be a reference to, or an introduction to what follows and the general approach of the report seeking to focus early upon questions of solvency as opposed to technical questions concerning the defects and the like in the demands.
KIRBY J: Some of the commercial realities would be the sinews of war that Chief Judge in Equity Bowen referred to, but some of the commercial realities would be that sometimes people have genuine disputes and that other third party interests will be affected adversely by determinations that are premature and that lead to damage to the reputation and commercial viability of the company.
MR WILLIAMS: The general scheme of the reforms is to seek to bring forward arguments about technical adjectival ancillary matters relating to the demands to an early stage and to focus the winding‑up debate upon questions of solvency. We do not, of course, as I indicated yesterday, cavil with the proposition that your Honour Justice Kirby puts concerning the relevance of such matters at the final stage, the winding‑up stage, the relevance of a wider range of issues, but by reason of 459S there is something of a policy choice in construing this legislation as to the stage at which such matters are relevant.
Paragraph 685 and following, the provisions dealing with applications to set aside a demand are set out, and 686, the three broad matters specified. Paragraph 687 deals with what became 459J. Paragraph 688:
The provisions . . . intended to be a complete code –
resolving matters –
on the basis of the commercial justice of the matter, rather than on the basis of technical deficiencies –
the matter to which I just referred in answer to your Honour Justice Kirby –
In particular it is intended to remove the present difficulties –
coming from estimating.
GUMMOW ACJ: There is some analogy to all of this and the problems of bankruptcy notices, is there not?
MR WILLIAMS: There is. The analogues are not sufficiently precise for them to be completely helpful because there are, of course, different stages, but there is an analogy in that area. Paragraph 691, proposed section 459H is considered. In 692 “substantiated amount” is referred to and problems of settling the precise amount owed by litigation first if necessary to settle what debts are owed. Of course, the settled law, as we have indicated in the decision of Chief Judge Bowen in Roma Industries, was that tax debts are owed, notwithstanding dispute.
GUMMOW ACJ: The trouble with the Harmer Report which produced these provisions is that it is blinkered in the sense that it did not display any apparent awareness of the particular situation of tax debts.
MR WILLIAMS: It appears to have taken those as read. It does not direct very much attention, if any at all, to the particular position of tax debts, but that was ‑ ‑ ‑
KIRBY J: That is a bit against you, is it not, because that rather suggests that the purpose was to incorporate them as any other debts in the treatment expressed in terms of complete generality.
MR WILLIAMS: That might be so to the extent to which tax debts are picked up in the reference to a debt.
GUMMOW ACJ: It is not a satisfactory situation because anyone knows that it is the Commissioner who is the most frequent litigant in the courts. If you are sitting in a bankruptcy list or a winding‑up list, it is the Commissioner whose counsel is there.
MR WILLIAMS: Yes. That reflects, as I put perhaps informally yesterday, the Commissioner’s particular position in relation to insolvency. He is the party most frequently at risk, or first at risk, in relation to insolvency, the first not to be paid. There are others, as I indicated; superannuation, workers compensation, other statutory entitlements that often tend to follow where a company strikes financial difficulty. But without wishing to be facetious, the Commissioner is the canary in this position, the first one to detect inability to meet debts as and when they fall due, and for that reason he is a very frequent litigant.
KIRBY J: There is nothing in the Law Reform Commission Report, is there? I mean, Mr Harmer was a pretty experienced solicitor and he might well have taken the view that you have urging on us that debt in this context is going to pick up all the baggage of the tax legislation and therefore you do not have to provide separately for it, it is sufficiently signalled by the word “debt”.
MR WILLIAMS: Your Honour, I cannot tell your Honours that I have read the entirety of the Harmer Report, but I am not aware of any specific reference to ‑ ‑ ‑
KIRBY J: I have got that on the shelves back in my chambers, I will have a look at it.
MR WILLIAMS: Your Honour, we do have some extracts in the joint authorities. I can take your Honours to such extracts as are frequently referred to.
KIRBY J: Only if it is part of your submission.
MR WILLIAMS: For the Court’s assistance, we refer to them in a footnote in our submissions in chief to the ‑ ‑ ‑
GUMMOW ACJ: Anyhow, what else do we get out of this?
MR WILLIAMS: Your Honour, 459J, paragraphs 699 to 700, setting aside demand on other grounds. Your Honours, following that document is the second reading speech. It is headed “Parliament of Australia Parlinfo Web”. It is a Corporate Law Reform second reading speech. On page 2 is what we think to be the only reference, and that is at about point 5 on the page in a paragraph beginning, “The Bill also makes it clear”, the second sentence in that paragraph:
Companies will no longer be able to resist statutory demands on purely technical grounds such as a minor misstatement of the quantity of a debt. Demands will be able to be set aside only where injustice would otherwise be caused.
That is the only reference we believe in that speech. Your Honours, there is a discussion of the general policy behind these provisions in the decision of Justice Lindgren in Chippendale Printing v Commissioner of Taxation (1995) 55 FCR 562, which we have provided to the Court this morning. There is a discussion that starts at page 574 and continues through to 578 of the background to the legislation, and some of the legal background, and we invite your Honour’s attention to those four pages as consideration of the policy matters. But we draw attention at 577 at about letter F to the paragraph:
Secondly, the Law evinces an intention that the issue of solvency is to be the subject of a final determination in the winding‑up proceedings . . . whereas the statutory demand procedure is of a preliminary and adjectival nature. It would be at odds with the scheme to allow the issue of solvency to intrude, otherwise than incidentally as referred to earlier –
His Honour then on 578 at about letter D refers to section 459S and the policy of 459S, creation of a dichotomy between the two kinds of proceedings.
GUMMOW ACJ: That decision of Justice McLelland in Altarama was very significant in its day, that Justice Lindgren refers to at the bottom of 577.
MR WILLIAMS: Yes, it is, with respect, quite a thorough analysis of the legal background as well as of the Harmer Report. Your Honours, in relation to the interrelationship between the relevant provisions and the general policy, can I take your Honours to tab 12 of the joint authorities, the large white folder, the decision of TS Recoveries v Sea-Slip Marinas. The issue in the case is set out at paragraph 6. There was a contention that the statutory demand and the proceedings that followed were an abuse, part of a course of conduct designed in effect to harm the defendant, and this was a preliminary question in relation to that. But at paragraphs 17 to 19 is a consideration of the interrelationship between the statutory demand and the winding‑up provisions and the different purposes, in effect, no doubt overlapping but nevertheless distinct. In paragraph 17 from the third sentence, “A challenge under s 459J(1)(b)”, we read through to the end of paragraph 19.
Finally, in answer to the question raised by your Honour the Acting Chief Justice concerning paragraph [70] of Justice Keane’s judgment and the observation that 459P proceedings are not in ordinary parlance an action for the recovery of tax. We have provided copies of Bluehaven Transport Pty Ltd v Deputy Commissioner of Taxation, a decision of Justice Williams in the Supreme Court of Queensland. It was an action to set aside a statutory demand. The key issue Justice Williams sets out at paragraph [12], coming from the submission put in that case:
does s209 of the ITAA, by providing that the Commissioner may sue for and recover unpaid tax, empower him to issue a statutory demand and proceed to have the taxpayer company wound up –
His Honour refers at paragraph [17] to the decision of this Court in James v Deputy Commissioner of Taxation, and quotes their Honours’ conclusion in paragraph [17], and his Honour’s conclusion is expressed in paragraph [20].
GUMMOW ACJ: Yes, thank you.
MR WILLIAMS: Your Honours, might I then turn to the Court of Appeal’s consideration of the 459J issue, which commences at 793 of the book, in volume 2? In paragraph [76], which is the first in the consideration of 459J(1)(b), at about line 35, his Honour identifies:
a degree of unfairness involved which, while not properly described as an abuse of process, should not be promoted or facilitated by the invocation of provisions whose function is to wind up insolvent companies where there is no real dispute as to debts which establish that insolvency.
Now, of course, we call attention to that, as with paragraph [70], to the elision between the two stages, the proceeding to set aside a statutory demand is not in any direct sense one to wind up an insolvent company, and the unfairness that his Honour identifies is of a different kind and arises at a later point, if at all. His Honour then, over the page in paragraph [82], quotes Justice Olney in Kalis Nominees, then indicates his respectful disagreement with that from paragraph [83]. His Honour, from about line 45, identifies four reasons for preferring a different view. First, and this is at about line 49, “the policy of the tax law . . . is not self-evident”. With respect, we take it to be clear and settled by reference to decisions such as Roma Industries that I have taken your Honours to this morning:
Secondly, the scope of the discretion conferred by s 459J(1)(b) should be determined by reference to the subject matter and purposes of the Act not the tax law.
With respect, we do not seek to do that. We seek to identify the legal incidence of the tax debt and the operation thereof from the tax law as the matter on which the Corporations Act relates. When one is construing the scope of the power conferred by 459J, it is essential to focus upon that power rather than the winding‑up power, which is quite distinct, because of the different purposes of the demand. The demand seeks payment. The reason for setting aside a demand must be a reason why a debt should not be paid pursuant to the demand rather than a reason why the company should not be wound up.
Thirdly, to recognise that there is no indication in the taxation legislation that companies engaged in genuine disputes about their tax liabilities should be wound up before the dispute is resolved is hardly to treat the discretion conferred by s 459J(1)(b) as an occasion to express disapproval of the taxation legislation.
Well, of course, we point to that as a further elision of the two stages. Then, finally, going on to 796, his Honour takes the view that:
the existence of a genuine dispute as to the underlying tax liability could be taken into account as one factor in exercising the discretionary power to set aside the demand under s 459J(1)(b) . . . And if one were to add to that factor consideration of the disruption to the taxpayer and its creditors and contributors involved in a winding up –
again focusing on the winding up –
and the absence of any suggestion that the creditor would suffer actual prejudice if left to remedies other than a winding up, it would, in my view, be open to a court to conclude that there was a reason to set aside the statutory demand without pausing to consider whether the circumstances involved unconscionable conduct or unfairness on the part of the Commissioner.
So, essentially there are three factors that his Honour identifies there as sufficient. One is the existence of a genuine Part IVC dispute. Secondly, disruption to the taxpayer and creditors and others and, thirdly, absence of evidence of actual prejudice. Prejudice, of course, is not something that normally arises at this stage for consideration. It is a matter that arises at the final stage, and one would not expect the creditor to be in a position of proving that in circumstances where the solvency of the company is not before the court.
The matters that his Honour identifies there are, with respect, no more than the ordinary incidence of the service of a statutory demand, and if those are sufficient, then the policy of the legislation is indeed set at nought. Your Honours, the passage here is, we apprehend, based on, with respect, an earlier misapprehension in the judgment, which is at 783 in paragraph [46]. This is a reference back to the factors that Justice McMurdo relied upon in relation to 459J. I will take your Honours to Justice McMurdo briefly in a moment. At paragraph [46] on 783:
His Honour went on to conclude that the respondents –
I will cavil with that in a moment –
were exposed to prejudice by the appellant’s use of the winding up procedure because they were unprepared for the demands which they could not meet immediately. There was no reason to think that the appellant’s inability to pursue the winding up of the respondents would enure to the prejudice of the appellant. Accordingly, his Honour exercised the discretion conferred by s 459J(1)(b) in favour of the respondents and set aside the appellant’s statutory demands.
So far as his Honour refers to the respondents there, at most there were only two respondents to which that observation of Justice McMurdo applied. Justice McMurdo at 752 at about line 15:
the applicants have in each case established that there is good reason for setting aside these demands under s 459J, in so far as they are not already to be varied under s 459H. There is an unfairness in the use of the statutory demand procedure in these cases because of its likely impact . . . There is evidence tendered by two applicants, Neutral Bay Pty Ltd and MA Howard Racing Pty Ltd, that because of legal advice which they had received, they were not ‘prepared’ for the respondent’s decisions, and “are unable to pay immediately”. On the other hand, the respondent does not point to any –
prejudice. The position in respect to Broadbeach was not caught up in his Honour’s observations. Broadbeach is referred to further up in the paragraph.
GUMMOW ACJ: Is Broadbeach the default assessment?
MR WILLIAMS: Broadbeach is the default assessment where, not having lodged the return, the Commissioner asked for it to be lodged and then rang up chasing it. The Broadbeach facts are seen clearly enough on page 22 of volume 1. On page 22 a letter on 17 March referring to an earlier letter, notifying of an audit and requesting the lodgement of the 2004 income tax return. No response received, contacted the tax agent 10 March, no response from that. Accordingly, “We will shortly issue an assessment” and reasons were enclosed with that and an objection to that was lodged.
The statutory demand was served on 24 April and the objection was lodged thereafter on 30 May, a matter which Justice McMurdo seems to have mistaken in terms of the order of events. There was no suggestion put in respect of Broadbeach that it was not in a position to pay the amounts. The facts in relation to the other two companies are relevantly identical, I believe. I should correct the date. The statutory demand was 18 May and the objection was 31 May. Page 237 is the letter to which Justice McMurdo referred. At about line 33:
Our instructions are that our client’s ordered their affairs in accordance with expert legal advice they received. That advice is contrary to the GST position set out in the assessments . . .
You will appreciate that our clients were not prepared to receive any assessments contrary to the advice they had received, let alone the huge penalty and interest imposts, and are unable to pay immediately. Moreover, it is uncommercial for our clients to attempt to source funding from related parties.
In these circumstances our clients request that you defer the time for payment –
Now, with respect, it being uncommercial is not a proper basis for refusing to pay a debt that is due and payable. The response to that request for an extension is at 240. At about line 45 they were told:
Should your clients pursue their objections rights, it is Tax Office policy to grant a deferral of recover action on condition that all undisputed debt and 50% of the disputed debt is paid, future lodgement and payment obligations are met and there is no risk to the collection of the revenue.
It was not pursued further. The suggestion that this somehow came as a surprise is one that, with respect ‑ ‑ ‑
GUMMOW ACJ: Could we take that statement on 240 as a sufficient indication of Tax Office policy generally?
MR WILLIAMS: Yes, I believe that is an accurate statement, your Honour. I will have that checked. Yes, that is an accurate statement. The suggestion that the company was taken by surprise is one that, with respect, quite lacks substance. The structure arose from advice, and your Honours will find this at page 180, a request for advice, initially orally in 2001, in relation to possible means. This is 180 at about line 20:
wishes to be advised on possible means of reducing the burden of GST, and of the stamp duty implications of the steps to be taken for reducing GST.
The sale contracts in turn for the final sales largely to unrelated third parties, at page 185 at about line 30 there were provisions that expressly dealt with the possibility that GST might be payable on the transactions. Then from immediately below that under the heading “Your Contentions” your Honours will see from 2 December a series of interviews going through from December 2003, provision of opinions and extensive consideration and exchange of views, going through to shortly before the period of the decision. But, at 389 at the end of the same book there is a file copy of an interview note with the respondent’s accountant, Mr Harris, from about line 40:
·His client is aware of a number of the development fraternity using these arrangements;
·Mark Howard considers himself to be a lower/medium sized developer within the industry;
·They were placed in a situation of having to use an arrangement against competitors who were using one . . .
·He discussed the arrangement with three partners of major accounting firms and their reasoning was that the ATO’s view on the arrangements were on shaky ground and at best was a 50/50 proposition –
That, of course, will all be resolved in the Part IVC proceedings, but at the very least, the suggestion that this assessment came as some kind of bolt from the blue is one that entirely lacks substance. When one looks at the bases on which Justice McMurdo exercised the 459J discretion and the Court of Appeal upheld it, there is no proper basis. There is nothing to distinguish this case from any case in which the Commissioner serves a statutory demand based upon a tax related debt. The matters that are referred to there are, in our submission, irrelevant, or at least insufficient under 459J.
Now, your Honours, can I say two things in conclusion to avoid interrupting my friend in relation to the new submissions yesterday. We say that the points raised are an attempt to resuscitate the arguments that were despatched by Justice McMurdo at paragraphs 17 to 21 of his Honour’s judgment. I can take the Court to them at this point, but 17 to 21 of Justice McMurdo’s judgment page 736.
KIRBY J: There are two questions. One is whether we should admit it at this late stage and the other is whether it has substance? Are you addressing the first point?
MR WILLIAMS: I am addressing the first point, your Honour. We say that by ‑ ‑ ‑
KIRBY J: That seems against you. If Justice McMurdo dealt with it, then there would seem to be no problem in this Court dealing with it.
MR WILLIAMS: Your Honour, it was a matter that was pursued in the Court of Appeal and despatched by the Court of Appeal as well in paragraph 41, and it is a matter that, in our submission, requires a notice of contention. The Court should not give leave to file a notice of contention in respect of a matter raised, shortly before midday on the day of the hearing.
HEYDON J: I thought the respondent withdrew the notices of contention which we have in the book and those notices of contention, in part, at least seem to go to 17 to 21.
MR WILLIAMS: The notices of contention, I think, went to 22 and following. I do not think the notices of contention that were filed and then abandoned went to 17 to 21.
HEYDON J: We have not actually seen the quote ‑ ‑ ‑
GUMMOW ACJ: We are the last people to know about all this.
MR WILLIAMS: Your Honours have not seen the submissions?
HEYDON J: We have not seen the new notice of contention.
MR WILLIAMS: Well, there is no notice of contention.
HEYDON J: There should be, as you say.
MR WILLIAMS: Our submission is that one is required for the issues to be raised and I have indicated my reasons for that. In relation to costs, your Honour ‑ ‑ ‑
KIRBY J: This is not the notice of contention that we received shortly before the hearing.
MR WILLIAMS: No, that has been abandoned and is not sought to be resuscitated. There are additional submissions that are being sought to be put and we submit they would require a new and different notice of contention.
GUMMOW ACJ: Which we have not yet seen.
MR WILLIAMS: Indeed. Your Honour, the Taxation (Interest on Overpayments and Early Payments) Act 1983 deals with interest.
GUMMOW ACJ: Give me the full citation of that, if you would?
MR WILLIAMS: Taxation (Interest on Overpayments and Early Payments) Act 1983. It creates an entitlement to interest in section 8E and full self‑assessment taxpayers are dealt with in 8G, which is the relevant provision. No doubt there is a prescribed rate.
CRENNAN J: Section 9, I think is relevant.
MR WILLIAMS: Yes, section 9 is, your Honour.
GUMMOW ACJ: Thank you.
MR WILLIAMS: Finally, in relation to costs, we offered at the special leave stage to give an undertaking to pay the reasonable costs of the respondents. The issue was not raised, but the respondent is being funded under the ATO test case program, therefore we seek only the orders in our written submissions.
GUMMOW ACJ: Yes, thank you Mr Williams. Yes, Mr Harrison.
MR HARRISON: Your Honours, I do not propose to go immediately to what my learned friend says is the matter of notice of contention, but I would just like to say that I did not seek to put the material before your Honours because my learned friend objected to my raising it and I thought it would be wrong then to press on, also as he had not had much opportunity to read them. But they come in logically when I am dealing with section 204(1)(a) because they are relevant to the interpretation of section 204(1)(a). They do not relate to the former notice of contention or do they relate to the matter of the running balance account, which I think my learned friend seems to have taken them to relate to. So they are simply providing a reference to a section that was relevant ‑ ‑ ‑
GUMMOW ACJ: Well, we will see a document when we see a document, Mr Harrison. We are not going to start cogitating in the abstract.
MR HARRISON: Thank you, your Honour. Your Honours, I will deal first with section 459H issues. Your Honour Justice Kirby, raised a query about the historical background to these provisions and, in my submission, it is necessary to make a brief reference to them in order to understand the judgment of Sir Nigel Bowen in Roma Industries. The predecessor of the current statutory demand seems to have been section 80(1) of the English Companies Act 1862 that provided that a company was deemed to be unable to pay its debts if it neglected to pay a demand with a space of three weeks.
In 1874, focusing on the expression “neglected”, Sir George Jessel, Master of the Rolls, held in Re London and Paris Banking Corporation (1874) LR 19 Eq 444 that a creditor who had served such a notice was not entitled to a winding‑up order if the company bona fide disputed the debt and other matters were satisfied because it was not a neglect to fail to pay a debt that was disputed. That section, section 80, was taken over into the State companies’ legislation and there is a table in McPherson’s Law of Company Liquidation, first edition, comparing that with section 222 of the Uniform Companies Act or providing the corresponding sections.
The same provision found its way into the Companies Act 1961‑1962 of the various states. There were numerous decisions about the interpretation of that section. I think it still used the word “neglected” to pay the debt at that stage. Your Honour the Acting Chief Justice referred to Altarama and another decision of Mr Justice McLelland that was often referred to was L & D Audio Acoustics Pty Ltd v Pioneer Electronics (1982) 7 ACLR 180, (1982) 1 ACLC 536 and General Welding & Construction Co v International Rigging [1983] 2 Qd R 568, a decision of Mr Justice McPherson in 1983.
KIRBY J: But the policy problem here – leave aside the Tax Commissioner’s suggested special position – is really the one that Justice Bowen put his finger on that companies who are on the brink of insolvency would use the sinews of war trading on the funds that they have got instead of paying it to the revenue.
MR HARRISON: That is the policy of the provision allowing the Commissioner of Taxation – the income tax allowing the Commissioner of Taxation to recover. What I am referring ‑ ‑ ‑
KIRBY J: But leave the Commissioner out of it just for the moment, the policy vis-à-vis a company with contractors and others and employees and so on, the policy is, I suppose, to stop premature and unnecessary misuse of the statutory demand procedure as a debt recovery process in order to, as it were, put tremendous pressure on a company to pay quickly and maybe out of turn and out of time and to the general liquidity difficulties of the company itself, and to protect the employees and other creditors of the company and those who deal with it.
MR HARRISON: And to ensure that the winding up – sorry the use of the expression “neglected” – also was taken to at least to establish a policy that the winding‑up proceedings should not be used to litigate the existence or otherwise of the debt. That should be left to the proceedings in the general course.
KIRBY J: A bit like in that respect the situation that arises in family law and those attempts to use the Convention for the return of seized children as the means of fighting out the custody dispute instead of sending it back to the country from which they were seized and having that dealt with there. It is a matter of finding the correct venue.
MR HARRISON: Yes, and that is one of the things that this case is about, is the correct venue for these disputes that we are having here to be here or do we wait for the winding‑up proceedings to determine ‑ ‑ ‑
KIRBY J: Except that you cannot ignore in this case the fact that your disputes are with a very particular litigant who has very particular protections under the legislation for the reasons that have been explained.
MR HARRISON: Yes. Your Honours, just again very quickly, another factor that led up to the current regime was that a practice grew up of rather than waiting for the hearing of the petition after service of a section 222 notice – I will call it, because that was what it was called for a substantial period – was to apply for an injunction to restrain the presentation of the petition or, as often happens, restrain the advertising of the petition that was presented before the creditor could get to court. Such injunctions were then granted very frequently and they are not now, although occasionally there is occasion to apply for such an injunction, under the old procedure.
However, under that procedure, the only basis for an injunction was really that a petition was doomed to fail. You could not get an injunction on a lesser basis than that which led, in the case of injunctions sought against the Commissioner, to a rather high standard or barrier for the taxpayer because of the difficulty in establishing to a judge hearing the application for what was basically an interlocutory injunction that the Commissioner was doomed to fail. That would require a substantial investigation of the matter.
If I could give an example of that sort of process of the taxpayer under our current income tax regime being put to the process of establishing that the Commissioner was doomed to fail and failing to reach that standard is Fortuna Holdings Pty Ltd v Deputy Federal Commissioner of Taxation [1978] VR 83. But one may observe that it does not seem to have been suggested that the court hearing the application for an injunction could not consider the prospects in the broad review in that case. So that is a new departure by the Commissioner here.
As a result, as your Honours have heard of the Harmer Report, the regime was changed to provide the alternative current procedure for considering the validity of a statutory demand before the hearing of the winding‑up application and that made these applications for injunctions unnecessary. Your Honour the Acting Chief Justice considered the policy in David Grant and Co Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265 at 269 to 270. I have handed up those to save going backwards and forwards to ‑ ‑ ‑
KIRBY J: That was discussed in Aussie Vic, was it not?
MR HARRISON: I think so, your Honour. There is just one passage that I want to refer to in that case at page 270. Your Honour set out relevant paragraphs of the Harmer Report and said at the bottom of the page:
The provisions of the new Pt 5.4 constitute a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised promptly.
Then your Honour goes on. In my submission, what would be the consequence if the Commissioner succeeds here is that that policy is thwarted because my learned friend contends that the issue of the prospects of the prospects of the Part IVC proceedings will be a relevant matter in the winding‑up court rather than, as we say here, now.
The only other case I would wish to refer to taking your Honours through the history of the course of the legislation is that in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 Justice Hayne reviewed the changes made by the more recent amendments in 1998 at 293 to 295. I do not want to go to that, but it is at tab 19 of the joint authorities.
Your Honours, if one goes then to Roma Industries, the issue at that stage was still whether there the taxpayer had neglected to pay the debt. Now, with respect, in the light of the provisions of the Income Tax Assessment Act, allowing for the Commissioner to recover immediately, the taxpayer had a hopeless case to show that within section 222 it had not neglected to pay the debt. But that is a different issue from the issue here, which is whether there is a genuine dispute about the debt. The language of the discussion in the section 222 cases did talk about disputes about the debt, but that was in explanation of the word “neglect”, whereas here the issue is raised directly, is there a dispute, and there is no limitation on the venue in which the dispute may be litigated.
GUMMOW ACJ: A number of these cases you have referred to are banker and customer disputes, are they not? David Grant was one. Was Mibor another one? It was the Commonwealth Bank, was it not?
MR HARRISON: Yes, I think it was, your Honour.
GUMMOW ACJ: There is a further dimension in the bank cases as to whether there is a Dobbs clause, that is to say, as between the banker and customer, a certificate from the bank is authoritative as to what the indebtedness is.
MR HARRISON: Yes, I am sorry, I have not picked up whether the cases relied on such a clause.
GUMMOW ACJ: No, I am not sure either.
MR HARRISON: I would have thought I would have noticed if it had been an important part of the decision. That is all I want to say about the history of the legislation and to make the submission that what the Commissioner is seeking to establish is that for tax debts it is a return to the bad old days when one litigates the prospects of success of setting aside the debt and the winding‑up proceedings rather than before the winding‑up proceedings.
Your Honour the Acting Chief Justice also raised the question of the relationship between the Commissioner’s right to recover the debt immediately and whether that ran counter to the purpose of winding‑up proceedings. A statement that is often referred to about the purpose of winding‑up proceedings is of Mr Justice Megarry in the Lympne Investments [1972] 1 WLR 523 to 527, also [1972] 2 All ER 385. I was proposing just to read the passage rather than hand up copies of the case, but I do have copies. His Lordship said:
The Companies Court must not be used as a debt‑collecting agency, nor as a means of bringing improper pressure to bear on a company. The effects on a company of the presentation of a winding‑up petition against it are such that it would be wrong to allow the machinery designed for such petitions to be used as a means of resolving disputes which ought to be settled in ordinary litigation, or to be kept in suspense over the company’s head while that litigation is fought out.
Then he goes on to deal with the neglect to pay point, but that is a sentiment that is ‑ ‑ ‑
KIRBY J: That may be wrong, but I mean the realities of this world are it is often the first port of call. What can courts do about it if ‑ ‑ ‑
MR HARRISON: Well, they can make the point in the winding‑up proceedings that this is not a procedure to be followed. I mean, it should lead to a dismissal in the winding‑up proceedings or perhaps a staying of the proceedings once it appears ‑ ‑ ‑
GUMMOW ACJ: Even if the company is insolvent?
MR HARRISON: No, not if the company is insolvent. That seems to be the case the company has to, in the winding‑up proceedings, establish solvency. That certainly was the position in the case of an application for an injunction to restrain the presentation of a petition.
KIRBY J: Was that not the case here in the facts of these cases, that you could not get the money together?
MR HARRISON: Your Honour, that was the issue under the old regime. The issue here is simply whether the debt is disputed under section 459H.
CRENNAN J: I think Justice Kirby might be referring back to the fact, as we understand the facts, there was no take up of the Taxation Commissioner’s policy of payment of 50 per cent of the extant debt and suspension of penalties and interest until there was a determination of Part IVC proceedings.
MR HARRISON: With respect, the policy sounds very nice when read on paper, but if you look at what happened here and which, I may say, it seems to be a common practice, there is a disputed debt and then the penalties are so enormous that if one has to pay half the debt and half the penalty, then one is paying the whole debt. In a case such as here there has been an assessment of penalty on the basis of recklessness. Yet in this Court it is conceded that ‑ ‑ ‑
GUMMOW ACJ: Do you pay all the penalty – half the penalty, rather?
MR HARRISON: No. The Commissioner’s policy requires half of everything or ‑ ‑ ‑
HEYDON J: No. It says “all undisputed debt and 50 per cent of the disputed debt”. You say that includes penalties and interest, do you?
MR HARRISON: Yes, your Honour. I say that because the penalties and interest are debts at the time. To take up another matter that your Honour Justice Crennan mentioned, the legislation mentioned, the Taxation (Interest on Overpayments and Early Payments) Act, so far as we can see does not provide for interest on repayment of penalties. It is not one of the types of debts that attracts interest on repayment.
GUMMOW ACJ: Mr Williams will clear that up in reply.
HEYDON J: Your position is that the companies are not insolvent if you leave out of account the disputed debts, but do you accept that they are insolvent if those debts turn out to be actually ‑ ‑ ‑
MR HARRISON: No, your Honour. Because of the nature of proceedings, that was not investigated because we argued simply that there was a dispute as to the debt. On the exercise of the discretion, the parties did not litigate that issue. The Commissioner did not allege that we were insolvent, either with or without payment. It simply was not a matter that was litigated. The Commissioner did not say, “I fear that if I do not wind the company up now, I will never get paid”. The parties simply chose not to investigate that.
HEYDON J: Is there not an inference from the letters of 9 February 2006?
MR HARRISON: There is an inference that it could not be paid immediately, but that says nothing about what the position is ‑ ‑ ‑
HEYDON J: Funding could not be sourced from related parties? If funding cannot come from related parties, it is usually harder to get from unrelated parties.
MR HARRISON: With respect, your Honour, I do not think it says it could not be ‑ ‑ ‑
HEYDON J: “Moreover, it is uncommercial for our clients to attempt” ‑ to attempt – “to source funding from related parties”.
MR HARRISON: In my submission, that does not convey that it is impossible. It conveys that to obtain it from related parties would, for example, lead to those parties having to borrow substantial amounts at high interest rates and the taxpayer is perhaps walking very close to the line saying, “Unless absolutely compelled to incur those expenses which I will not be able to recover, I should not be compelled to pay the debt now when there is a dispute over the debt, or you should be left to your common law remedies of suing me and proceeding along those lines”.
CRENNAN J: In relation to section 14ZZM, are you making some point about, you should not have to pay, or there is a dispute because this is a GST debt rather than an income tax assessment?
MR HARRISON: Your Honour, I am not arguing whether one should or should not have to pay.
CRENNAN J: No, I am trying to elicit whether or not you are making the point that is connected to the fact that this concerns GST.
MR HARRISON: Not about whether there is an immediate debt or not, no, your Honour. The relevant distinction between GST and income tax for the purposes of these proceedings is that it is accepted that a GST debt arises without an assessment, therefore a dispute as to whether GST is owing is a dispute as to that debt, whereas for income tax there was the analysis in Hoare Bros that was along the lines that challenging the assessment is not disputing the debt assessed, even though you are disputing, as I understand the reason, the underlying debt because the assessed debt is a separate debt from the underlying debt.
Alternatively, I think my learned friend is saying there is no debt but an assessed debt. But the Hoare Bros reasoning was that when you are seeking to vary the assessment, you are not challenging the existence of the debt, you are doing something else. You are trying to get a different assessment, but in either case the debt is unchallengeable. That seems to be the actual basis of the reasoning in Hoare Bros. You are only challenging the existence of that if you are saying it was not a valid assessment.
Your Honour Justice Heydon raised the question of the relationship between the statutory demand and the ability of a creditor to proceed to winding up on the basis of execution unsatisfied. There is one avenue of relief open in those cases, not one to be had for the asking but it is there, and that is to seek a stay of execution or a stay of proceedings of the proceedings for judgment. There are at least two High Court cases that acknowledge that that is a possible remedy. I have handed both of those up to your Honours.
GUMMOW ACJ: Australian Machinery.
MR HARRISON: Yes. The citation is (1946) 20 ALJR 326. There is a later case of exactly the same name that is reported in 180 CLR.
GUMMOW ACJ: But not this one?
MR HARRISON: It is not worth following it through; no. At page 328 at about point 3:
The following judgments were delivered:-
Latham, CJ, said that Justices Rich, Dixon and Williams, JJ, and he were of opinion that the contention that there was no jurisdiction to grant a stay in these proceedings by reason of the provisions of the Income Tax Assessment Act s 201, and the associated sections should not be accepted. They were of opinion that there is jurisdiction to grant a stay in such proceedings, but that in considering any application for a stay the policy of the Act as stated in s 201 is a matter to which great weight should be attached.
It is a high bar but it is not an insuperable bar.
GUMMOW ACJ: And the second sentence of Justice Starke likewise. He agreed that there was a power.
MR HARRISON: Yes, your Honour.
GUMMOW ACJ: He got angry about other matters.
MR HARRISON: Then one of the many Clyne Cases, Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857 at page 858 in the right‑hand column at letter F, Acting Chief Justice Mason:
I was informed that it is a somewhat unusual course for the Deputy Commissioner to commence proceedings for recovery in a court relying on a notice of assessment which is under challenge in proceedings under Part V of the Assessment Act. It is to be hoped that this is so. The institution of proceedings for recovery on a notice of assessment which is challenged in proceedings under Part V may operate oppressively and unfairly to a taxpayer. Fortunately, and this is conceded by Mr Priestley QC for the Deputy Commissioner, the courts in which recovery is sought have a jurisdiction to stay or adjourn recovery proceedings when the notice of assessment is under challenge in Part V proceedings, insisting, if it be appropriate, on the taxpayer giving suitable security or a suitable undertaking to meet the exigencies of the situation.
GUMMOW ACJ: You have to go to page 859 too:
It is a provision which has been stringently criticized. However, it appears to be impervious to criticism for Parliament has not seen fit to amend it.
That was talking about 201 which has in fact been amended later.
MR HARRISON: A substantial part of my learned friend’s ‑ ‑ ‑
GUMMOW ACJ: What was the outcome in Clyne actually?
HEYDON J: “I order that the stay be removed”. So he acceded to the unusual course.
GUMMOW ACJ: It is really the paragraph at the bottom of page 860, right‑hand column, the letter F: “The consequence”.
MR HARRISON: That is a case, if I can paraphrase it, a very difficult one, which is not the position here. My learned friend wove into his submissions that the Court should not have regard to the fact of the dispute in the proceedings under Part IVC that sections 14ZZM and 14ZZR said to the effect that the existence of Part IVC proceedings are no bar to proceedings for recovery. However, another basic element of my learned friend’s argument is that – he says it is a secondary element – the production of the notice of assessment is conclusive evidence that the debt is due and that precludes a court, once the notice of assessment is produced, concluding that there is in fact a dispute, albeit in another jurisdiction.
If that were right, then sections 14ZZM and 14ZZR would be otiose because the production of the notice of assessment in any case in which a taxpayer sought an adjournment because of the Part IVC proceedings would preclude a court from considering the matter. In other words, those sections assume that in the absence of those sections a court may well decline to proceed because it would take recognisance of the existence of the dispute. So to make the submissions he is making here, or rather those two sections tell against the submissions that my learned friend is making is to the conclusiveness of the notice of assessment.
If I could go then to the new section 204, which is to be found at tab 14 in the respondent’s – I am not sure whether this really appears adequately in the material that has been put before your Honour. That section was introduced by section 3 in Schedule 16, item 14, of A New Tax System (Tax Administration) Act 1999, No 179 of 1999, which by item 37 in Schedule 16 applies “to the 2000‑2001 year of income and later years of income”.
My learned friend referred to the definition of “income tax” and “tax” in section 6 of the Income Tax Assessment Act as being, “income tax imposed as such by any Act, as assessed under this Act” and submitted that one therefore has to read assessed income tax into section 204. With respect, that makes the amendments or the changes made by the new section 204 pointless because, if one reads subsection (1) and (1A), the section that, with respect, is deliberately distinguishing between cases of assessed tax and tax that is not assessed, so that it talks in subsection (1)(a)(ii) the tax becomes payable”
(ii)21 days after a notice of assessment is given to the taxpayer; or
(b)in any other case – 21 days after that due date for lodgement.
That is inconsistent with reading “tax” as meaning assessed tax. Similarly, subsection (1)(a), with respect, is designed to deal specifically with a case in which tax has not been assessed otherwise there is no point in it. This is a case where a contrary intention is shown and the reasoning of the Court of Appeal is not to be criticised on the basis that it took “tax” there to refer to tax arising under the operation of the Act and therefore it is distinguishing the present situation from that in Hoare Bros.
CRENNAN J: One view is that it covers assessed tax and it is wider than that.
MR HARRISON: I am sorry, your Honour.
CRENNAN J: One simple view is it covers assessed tax but is also wider than that.
MR HARRISON: Yes, your Honour. Except that one has provisions to the effect that once tax is assessed, other provisions come into effect to say whether tax is payable. So they may supersede that. This is subsection (1)(a). One would not, for example, think that a taxpayer who came within subsection (1)(a) who had received an earlier assessment could delay of payment on the basis of subsection (1)(a).
The more important matter is, however, that both submissions so far have taken section 204 as something to be considered on its own, whereas in fact it now consists of but one part of a wider system that was established by Chapter 4 of the Taxation Administration Act, which is to be found at tab 20 of the respondent’s submissions:
Chapter 4 – Generic collection and recovery rules.
Part 4‑15 – Collection and recovery of tax‑related liabilities and other amounts . . .
250‑1 What this Part is about
This Part deals with the methods by which the Commissioner may collect and recover amounts of taxes and other liabilities.
Before I go on to section 250‑5, I will take the Court to section 255‑5, which provides:
Recovering a tax‑related liability that is due and payable
(1)An amount of a tax‑related liability that is due and payable:
(a)is a debt due to the Commonwealth; and
(b)is payable to the Commissioner.
And the Commissioner may sue in his own name. That is a repetition of a familiar rubric that has now been put into this part of the Act. We then have to say, what is a tax‑related liability when we go back to section 250‑5, which says:
Some important concepts about tax‑related liabilities
(1)A tax‑related liability may arise for an entity before it becomes due and payable by that entity.
(2)For some tax‑related liabilities, an assessment needs to be made before the amount of the relevant liability becomes due and payable.
Then there is an example given which I will come back to:
(3)An amount of a tax‑related liability may become payable by an entity (for example, when the amount has been assessed) before it is due and payable by that entity.
Then in section 250‑10, “Summary of tax‑related liabilities” subsection (1) deals with income tax. It lists a number of types of tax. Item 55:
income tax, including any liability taken to be income tax for the purposes of section 204.
So that makes anything that is within the scope of section 204 a tax‑related liability. It is not limited to assessed tax because section 204, in our submission, covers both assessed and tax not yet assessed in the case of a self‑assessment taxpayer. For GST we go to subsection (2) item 5:
net amount, including amounts in respect of luxury car tax and wine equalisation tax.
That refers to sections 33‑3 and 33‑5 of the GST Act. What may be significant there is that there is no reference to tax assessed under the GST Act. There is no reference to amounts that become due by virtue of a declaration made under the anti‑avoidance provision, Division 165. Again that supports the view that was taken by the Court of Appeal that the origin of GST is the operation of the Act on the events that have happened and that therefore the Hoare Bros distinction between assessed tax and tax that has arisen by operation of law at the least could not be carried across into the liabilities for GST. The Court also concluded that the same thing applied to the new section 204(1)(a).
HEYDON J: Was this argument put in your written submissions?
MR HARRISON: No, your Honour. Having introduced the point, may I submit that that is not a matter that comes within the rules relating to notices of contention.
HEYDON J: I was just interested to know whether one could amplify your argument by examining the treatment in the written submissions The answer is ‑ ‑ ‑
MR HARRISON: Yes. May I hand up written submissions, your Honour?
GUMMOW ACJ: The answer at the moment is no, but there is going to be more written submissions. Is that what you are proffering now?
MR HARRISON: I am proffering the submissions of which I gave a copy to my learned friend yesterday morning. I understood him to object to my handing to the Court in advance of ‑ ‑ ‑
GUMMOW ACJ: Anyhow, you are handing them up now.
MR HARRISON: Yes, your Honour.
GUMMOW ACJ: We will see what happens.
KIRBY J: Is this the one that contains the notice of contention that is not a notice of contention?
MR HARRISON: It is not even a notice of contention that is not a notice of contention, your Honour. It is a further submission in support of the Court of Appeal’s instruction on section 204.
KIRBY J: It did not sound like a matter that required a notice of contention; a suggestion of an alternative way in which a decision of the Court of Appeal could be supported, which their Honours did not embrace.
MR HARRISON: Yes, in my submission, that is not something that comes within the description of contending that the judgment ought to be upheld on the ground that the court below had erroneously decided or had failed to decide some matter of fact or law.
HEYDON J: The reason they failed to decide this was that it was not put to them, I take it? I just want to be able to judge the Court of Appeal’s reasoning and if this argument was put to the Court of Appeal, I want to see what they said about it. If it was put to the Court of Appeal and they said nothing about it, that is another matter. But was it put to the Court of Appeal?
MR HARRISON: This was not put to the Court of Appeal.
GUMMOW ACJ: What is the punch line in this document?
MR HARRISON: The punch line in this document is that one goes to ‑ ‑ ‑
GUMMOW ACJ: I am not sure at the moment what point you are trying to make from it which gets you added support to the conclusions of the Court of Appeal.
MR HARRISON: There are two reasons for putting the submissions to the Court. The first is that the Court should not make a decision without reference to sections which may be relevant. The second is they support the Court of Appeal’s decision because section 250‑5 provides that the tax‑related liabilities, including income tax may arise independently of an assessment and therefore support the Court of Appeal’s construction of section 204(1)(a). In my submission, they establish or they support an analysis consistent with your Honour’s and Mr Justice Hughes’ observations in Commonwealth of Australia v SCI Operations which at least we read as supporting the notion that a liability to income tax prima facie arises by the operation of the Act.
KIRBY J: Do we have SCI in front of us?
MR HARRISON: No, your Honour.
GUMMOW ACJ: I think we do.
MR HARRISON: Mr Justice Gummow asked that we refer to it in the course of the submissions.
KIRBY J: Yes. I remember it being raised by his Honour but I am just looking for a copy of it myself.
GUMMOW ACJ: Are you saying that the tax liability perhaps to the GST, perhaps to the Assessment Act as well, do not give rise to a debt within the meaning of 459?
MR HARRISON: No, your Honour. I am saying they give rise to a debt independent of an assessment, therefore one cannot support the argument in Hoare Bros that the Part IVC proceedings are not disputing the debt.
GUMMOW ACJ: All right. Let me ask Mr Williams. Do you have any objection to us receiving this submission?
MR WILLIAMS: No, your Honour.
GUMMOW ACJ: You will be dealing with it in reply?
MR WILLIAMS: We may need some time. Having heard the way the Court is articulated, we may need until the end of the week or possibly Monday to take instructions and put in a short written submission.
GUMMOW ACJ: All right. Yes, Mr Harrison. I think you have said what you want to say, have you not, on this new material?
MR HARRISON: Yes, your Honour. Your Honour, perhaps I should have said at the beginning that I am not seeking to go over the matters that are dealt with in our written submissions but to pick up points that were raised in the course of argument. Our basic approach is to support the Court of Appeal’s reasoning.
GUMMOW ACJ: Yes, but you have now a further task which is to support the Court of Appeal’s reasoning and deflect the criticisms of it by your opponent.
MR HARRISON: Yes, your Honour.
GUMMOW ACJ: He says, for one thing, that a certain amount of reading together went on in the Court of Appeal reasoning, you will remember.
MR HARRISON: I am sorry, your Honour.
GUMMOW ACJ: He says there is some impermissible conflation in the Court of Appeal reasoning.
CRENNAN J: That is the elision point in relation to a statutory demand and a winding‑up proceeding.
MR HARRISON: What I understand he is saying is that the Court of Appeal is wrongly considering winding‑up issues in the application to set aside the statutory demand. Our answer to that is that - this is in relation to 459H – it is not a matter of asking whether there is a wrongful elision. One looks at 459H and sees whether it covers a dispute that is justiciable only in another jurisdiction and if that is the conclusion, then that is the end of the matter and one does not in any way seek to alter that by a priori assumptions about what is appropriate to be considered at which stage of the proceedings. There is no indication in section 459H that anything should be excluded that is within the words of the section. In other words, my learned friend is creating a complication that just simply does not exist in relation to the section. So, our submission is as short as can be. That is all one has to say.
CRENNAN J: What about the point about being entitled to sue, sue to judgment and there being no defence in that context? How does that fit with the genuine dispute verbiage to which you have been just addressing your remarks?
MR HARRISON: It does not detract from the fact that there is a genuine dispute being litigated in another jurisdiction.
CRENNAN J: Even though there would be no defence available in that other jurisdiction?
MR HARRISON: That does not mean that the debt is not being disputed and even after judgment was entered as the Part IVC proceedings continued the debt would still be ‑ ‑ ‑
GUMMOW ACJ: It has to be a genuine dispute as to existence or amount of a debt.
MR HARRISON: Yes. The debt is the debt for income tax. It is established prima facie by the notice of assessment and then there is the capacity to sue for judgment. That has not happened yet.
CRENNAN J: Then you would factor in that there can be no defence in that context in relation to the existence or the amount.
MR HARRISON: In the court that has jurisdiction to give judgment.
CRENNAN J: The recovery proceedings.
MR HARRISON: But the fact that there is judgment, in my submission, does not put an end to the Part IVC proceedings. The dispute will roll on in the Part IVC proceedings even after judgment and, presumably, if judgment were obtained once the taxpayer succeeded in the Part IVC proceedings, the taxpayer would then have to go back to the District Court and apply to set aside the judgment on the grounds of events happening after the judgment. But in the end, in our submission, what is being determined in the Part IVC proceedings is that true liability under the income tax legislation as applied to the events that have happened to income tax.
Although it is an unusual situation to allow a judgment to be obtained when the court must know that the judgment can be set aside, the court is compelled to do that but that does not deprive what is happening in the Part IVC proceedings of the description of disputing the debt, meaning the debt imposed by the income tax legislation. In a way, because of the interaction of the two proceedings, it is as though the Commissioner is entitled to interim judgment, although it is not called that, until the dispute is resolved. Perhaps a slight analogy with an injunction to establish the ‑ ‑ ‑
GUMMOW ACJ: That is right. It may be that the result of the particular position of the tax law is that the legislative policy which led to 459, namely, the pre‑existing injunction system, the displacement of that, that that misfires when it comes to the tax system and that the questions that we are talking about have to be looked at in the bankruptcy situation at the time when are making the sequestration order and in the company situation at the time when you are making the winding‑up order, which I think your opponent concedes.
MR HARRISON: He concedes but what he does not grapple with is section 459S which says that one cannot raise in the winding‑up proceedings matters which were or could be raised in the setting‑aside proceedings.
GUMMOW ACJ: Let us look at 459S.
MR HARRISON: Yes.
GUMMOW ACJ: If your opponent is correct, you could not have relied upon this point we are talking about, could you? So, there would not be this quasi estoppel in 459S.
MR HARRISON: He has to say that we cannot rely on it even as a discretionary ground because if we can rely on it ‑ ‑ ‑
GUMMOW ACJ: At the 459 stage?
MR HARRISON: Yes, 459J.
CRENNAN J: J.
MR HARRISON: In my submission, it is necessarily relevant to consider under 459J whether or not there are proceedings in other courts. To say that that cannot be taken into account is imposing too great a blinker on – making it just too artificial the process that the court is engaging in under 459J. There is no warrant to read 459J down in that way. So, unless you say that that cannot be raised as a discretionary matter in 459J, it just cannot be raised at all in the winding‑up proceedings.
GUMMOW ACJ: Why is that?
MR HARRISON: Because, as we contend, the question of whether there are proceedings with reasonable prospects of success under Part IVC is relevant to a court in exercising its discretion under 459J. For example, if other factors told in favour of setting aside the statutory demand under 459J, such as something that is acknowledged to be an appropriate factor, oppressive conduct by the Commissioner, a court ought to be able to say, “Certainly there is oppressive conduct by the Commissioner, but you have not applied for a review under Part IVC”, or, “You have applied for review under Part IVC, but you have no prospects of success”.
In a case such as that, in my submission, at the least, the existence of the Part IVC proceedings and their prospects are relevant to the 459J discretion and if that is the case, then they cannot be admitted in the winding‑up proceedings. But I would put it more broadly, the fact of Part IVC proceedings must, in most cases, be relevant to the 459J discretion and therefore must be excluded on the winding‑up.
GUMMOW ACJ: Yes.
MR HARRISON: In dealing with section 459S my learned friend referred your Honours to the letter from the Commissioner asking for a lodgement of a return and referred to the fact that no return was lodged. In my submission, that needs to be read in context with other evidence, namely, the affidavit of – this is called Broadbeach Properties, I should say – of Mr Harris at page 74 of volume 1 in which he recounts ongoing communications where he is explaining to the Commissioner his difficulty ‑ ‑ ‑
CRENNAN J: I am sorry, what page are we on?
MR HARRISON: I am sorry, on page 74, paragraph 7.
CRENNAN J: Thank you.
GUMMOW ACJ: Mr Harris is the accountant for the group.
MR HARRISON: Yes, your Honour. The only point that I would make in referring to this is my learned friend would seek to gain some traction from the appearance that the taxpayer had simply ignored the Commissioner’s demands and I make the point that in fact it had not, it had been explaining what the problem was and that was something which was before the court.
Apart from that, my submission is really to reiterate what is said in the written submissions and that is that we support the reasoning of the Court of Appeal. It took into account a number of factors which, in our submission, it was entitled to take account of and it is not a case for interfering with the exercise of its discretion. If, however, the Court were minded to set aside that determination, in our submission, the matter should be sent back to have the discretion determined on the facts as they exist now as events have moved on and the case is getting closer to determination and that may be a relevant factor.
GUMMOW ACJ: Thank you. Yes, Mr Williams.
MR WILLIAMS: Your Honour, the position in relation to interest on overpayments in relation to penalties is somewhat complex and I wonder if I might have the Court’s leave to deal with that and, if it is of assistance, the entirety of the short matters that I would wish to put by way of reply in writing, say, by Monday. We may be able to do it earlier.
GUMMOW ACJ: Yes. Mr Harrison had better have the chance to respond, too.
MR WILLIAMS: On that issue?
GUMMOW ACJ: Yes.
MR WILLIAMS: The issue of overpayment, certainly, yes?
GUMMOW ACJ: Yes.
MR WILLIAMS: We will do that in a separate part of the note, but if I might have the opportunity to do the reply entirely in writing, if that is convenient?
GUMMOW ACJ: Yes, that can be a separate document. The reply to the addendum can be separate from the overpayment point.
MR WILLIAMS: Yes, may it please the Court.
GUMMOW ACJ: Is there anything else in reply?
MR WILLIAMS: Your Honour, more generally, in relation to 177(1) and the suggestion that 14ZZM was otiose, the two sections go to a somewhat different matter but there is some suggestion in the authorities – I do not have the case with me – that it may be no more than a matter of 14ZZM or its predecessor might be unnecessary but it is there to emphasis the legislative policy. Pay now, argue later is the colloquial description of it in, I think, some of the cases.
In relation to section 204(1) and (1A), we deal with the point that our friend raises in our submissions in‑chief – the appellant’s written submissions, page 8 at about line 3. Section 204 makes whatever tax is payable nominally due on a particular day but it is the assessment that crystallises that liability. So, if in the case of Broadbeach the assessment is after the date on which the tax became liable, the assessment will make it payable from the date which the statute imposes. Your Honours, subject to the fresh matters our friend raises today and the addendum, those are the matters that I would wish to put ‑ ‑ ‑
CRENNAN J: May I ask you about a small point. There was a reference to Tax Office policy at appeal book 240 in relation to deferral of recovery in circumstances where there is some dispute and there was a reference to the requirement that there be payment of 50 per cent of the disputed debt and it was said by Mr Harrison that included 50 per cent of the penalties as well. Are you going to clarify that in your written document?
MR WILLIAMS: I will clarify that in the addendum to the written document, your Honour, yes.
CRENNAN J: Thank you.
MR WILLIAMS: Those are our submissions.
GUMMOW ACJ: Yes. On or before 23 June 2008 the appellant has leave to provide the further submissions indicating, first, in responding to the addendum handed up this morning and, secondly, as to dealing with the matters concerning the overpayment statutes, including the Commissioner’s policy.
MR WILLIAMS: Yes, may it please the Court.
GUMMOW ACJ: The respondents have leave to – how long do you need after that? Seven days, I think?
MR HARRISON: Seven days.
GUMMOW ACJ: The respondents on or before 30 June 2008 will put in any response to those materials provided by the Commissioner.
We will consider our decision in these appeals and we will now adjourn until noon.
AT 11.45 AM THE MATTER WAS ADJOURNED
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