Docker v Meertens

[2012] VCC 13

IN THE COUNTY COURT OF VICTORIA Revised
(Not) Restricted

AT MELBOURNE

COMMERCIAL LIST
EXPEDITED CASES DIVISION

Case No. CI-09-02705

ANDREW SCOTT DOCKER	Plaintiff
v.
JON MEERTENS and ORS	Defendants

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	3 February 2012
DATE OF JUDGMENT:	3 February 2012 (revised 6 February 2012)
CASE MAY BE CITED AS:	Docker v. Meertens & Ors
MEDIUM NEUTRAL CITATION:	[2012] VCC 13

REASONS FOR JUDGMENT

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Catchwords:             Practice and procedure – Application to reinstate proceeding – Alleged breach of Heads of Agreement settling the litigation – Money lodged with the plaintiff’s solicitors as stakeholder to meet capital gains tax liability – Construction of the agreement.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms P. Ozberk	Nicholsons Lawyers & Consultants
For the Defendants	Mr P. Bravender-Coyle	Trian Lieu & Desmond Lieu

HIS HONOUR:

1The defendants by summons dated 9 January 2012 seek the reinstatement of the proceeding and an order that the plaintiff pay the third defendant the sum of $10,600.80 in accordance with Clause 4.1(3) of Terms of Settlement. The proceeding was commenced by writ dated 16 June 2009 and was compromised by Heads of Agreement dated 25 September 2009.

2The Terms of Settlement provided for the transfer of a property at Factory 3, 27 Laser Drive, Rowville to the plaintiff or his nominee. The parties anticipated that because of the consideration to be paid by the plaintiff to the third defendant for the property, that a capital gains tax liability may be incurred by the third defendant. Clause 4.1(3) of the Heads of Agreement provided that:

“Docker [the plaintiff] must pay the amount of CGT [capital gains tax] payable by NABG [the third defendant] in respect of the transfer of the Land, to Piper Alderman, such sum to be held by Piper Alderman, solicitors, of 385 Bourke St, Melbourne, as stakeholder for the parties in an interest bearing deposit account, with instructions to pay the principal sum to NABG, on it providing to Piper Alderman, its tax assessment for the financial year ended 30 June 2010, the interest on that principal sum then to be paid to Docker”.

3The plaintiff apparently paid the sum of $10,600.80 to Piper Alderman solicitors to be held by them, as stakeholder. The affidavit in support of the application, sworn by Desmond Lieu, sworn 9 January 2012, states that this amount “was calculated and agreed by the parties”. There has been no dispute of that statement by the plaintiff upon the application.

4The plaintiff, in correspondence, disputed the liability of the stakeholder to pay the sum to the third defendant on the basis that no “tax assessment” had been provided by the third defendant to the stakeholder. The third defendant referred to s.166A of the Income Tax Assessment Act 1936, which suggests that in relation to company returns, the return itself is to be regarded as the assessment of the relevant taxable income. That point was not pursued by the plaintiff upon the present application.

5The matters relied upon by the plaintiff as justifying the non-payment of the moneys held by the stakeholder were that:

a.Clause 4.1(3) referred to the third defendant’s “tax assessment for the financial year ended 30 June 2010”. In fact the third defendant’s liability for capital gains tax was not included until it lodged its tax return for the following year, ending 30 June 2011;

b.in the year ended 30 June 2011, the third defendant did not have a tax liability, in fact it received a refund cheque for $972 which took into account PAYG payments made during the year and the fact that the expenditure of the company was equivalent to the income of the company and, as a consequence, there was no tax payable.

6In the taxation return for the year ended 30 June 2011, the income items were the capital gain on sale of non-current assets of $35,336, (which, applying the appropriate tax rate of 30%, calculates the tax at $10,600.80) and a gross loss from trading of $14,000. The net income was therefore $21,336, which was offset by expenditure in that sum.

7The Heads of Agreement must be construed as a commercial document reached by parties to commercial litigation with the benefit of legal advice. Clause 4.1(3) must be interpreted in the light of the agreement as a whole and the relevant factual context in which the parties found themselves at that time. The parties were litigating in this court, they reached agreement on the basis that there would be a transfer of the property from the third defendant to the plaintiff in consideration of the payment of a sum by the plaintiff to the third defendant.

8It was recognised that this would give rise to a liability for capital gains tax and provision was made for that amount to be deposited with the plaintiff’s solicitors as stakeholder until the liability actually arose by the issue of a tax assessment. The Heads of Agreement were dated 25 September 2009. The Terms of Settlement contemplated a valuation of the land within seven days and settlement of the transaction within a further period of 60 days, with the delivery of a transfer of land by the third defendant to the plaintiff. It was anticipated, therefore, that there may be some delay and that any interest accruing on the money paid to the stakeholder by the plaintiff would be returned to the plaintiff. Clause 4.1(3) was drafted on the basis that the capital gains tax liability would arise in the year ended 30 June 2010, but without thought that the liability might not arise until the following year.

9Reading Clause 4.1(3) in the context of the settlement of the dispute between the parties, I do not consider it is seriously arguable that the liability of the stakeholder to pay the third defendant the amount of capital gains tax was dependent on that amount being included in the tax assessment of the third defendant for the year ended 30 June 2010 and not otherwise. If there were a delay in the mechanism for settlement of the transaction contemplated in Clause 4.1 and therefore, when the liability for capital gains tax arose, in my view that would not affect the obligation of the stakeholder to pay the sum to the third defendant.

10Plaintiff’s counsel, Ms Ozberk, submitted that the reference to “the amount of CGT payable by NABG in respect of the transfer of land” need only be paid to the third defendant by the stakeholder if the third defendant actually was required to pay tax in the relevant year. In my view, that interpretation of the Heads of Agreement is not open. The  Heads of Agreement simply refer to capital gains tax and not to extraneous factors affecting the other aspects of the third defendant’s business which might affect the calculation of the net tax it may have to pay in the relevant financial year.

11Capital gains tax is calculated pursuant to a formula which depends upon a number of factors including the purchase and sale prices for the property and the period of time it has been held. The tax return which has been put in evidence for the year ended 30 June 2011 sets out the capital gains schedule and work sheet which were required to be completed by the third defendant as part of the return. The amount of the capital gains tax payable by the third defendant as referred to in the Heads of Agreement was clearly the amount to be calculated in accordance with the relevant statutory requirements without taking account of the other business operations and taxation liability of the company.

12In my view, the plaintiff has not raised any matters by way of defence to the claim by the third defendant based upon the Heads of Agreement that would have any real prospect of success at trial. Accordingly, it is appropriate that I make the following orders:

a.The proceeding is reinstated.

b.Judgment for the third defendant against the plaintiff that the plaintiff pay to the third defendant the sum of $10.600.80, together with interest pursuant to statute, seven days after the date of demand, namely 30 August 2011 until today of $481.54, total judgment $11,082.34.

c.The plaintiff must pay the third defendant’s costs of the application fixed at $1,800.

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Certificate

I certify that these 3 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 3 February 2012 and revised on 6 February 2012.

Dated: 6 February 2012

Caroline Dawes

Associate to His Honour Judge Anderson