Fastbet Investments Pty Ltd v Deputy Commissioner of Taxation
[2017] FCA 1406
•24 October 2017
FEDERAL COURT OF AUSTRALIA
Fastbet Investments Pty Ltd v Deputy Commissioner of Taxation [2017] FCA 1406
File number(s): QUD 547 of 2017 Judge(s): DERRINGTON J Date of judgment: 24 October 2017 Catchwords: TAXATION – notice to require the applicant to give security under s 255-100 of Schedule 1 of the Taxation Administration Act 1953 (Cth) – where substratum of fact that formed the basis of the decision has changed – whether prima facie case considered – balance of convenience considered Legislation: Taxation Administration Act 1953 (Cth), s 255-100 of Schedule 1
Administrative Decision (Judicial Review) Act 1977 (Cth), s 15
Judiciary Act 1903 (Cth), s 78B
Cases cited: Comptroller-General of Customs and Anor v Kawasaki Motors Pty Ltd (No 1) (1991) 32 FCR 219
Keris Pty Ltd (Trustee) v Deputy Commissioner of Taxation (2017) FCAFC 164
Date of hearing: 24 October 2017 Registry: Queensland Division: General Division National Practice Area: Taxation Category: Catchwords Number of paragraphs: 31 Counsel for the Applicant: Mr JW Fickling Solicitor for the Applicant: Robson Legal Counsel for the Respondent: Mr RC Schulte Solicitor for the Respondent: ATO Dispute Resolution ORDERS
QUD 547 of 2017 BETWEEN: FASTBET INVESTMENTS PTY LTD ACN 124 463 770
Applicant
AND: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
JUDGE:
DERRINGTON J
DATE OF ORDER:
24 OCTOBER 2017
THE COURT ORDERS THAT:
1.The applicant have leave to file and service its Amended Originating application;
2.The application for interlocutory relief be dismissed;
3.The applicant pay the respondent’s costs of and incidental to the application.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DERRINGTON J:
In this matter, the applicant seeks urgent interlocutory relief in support of its challenge to the exercise of power by the Deputy Commissioner of Taxation, who made a decision under s 255-100 of Schedule 1 of the Taxation Administration Act 1953 (Cth), to require the applicant to give security in relation to future tax-related liabilities arising from income tax and GST. The application, which was brought on urgently, was filed last week. By an application today, the applicant seeks leave to amend the originating application to add some additional grounds. I will come to them shortly. The application is supported by an affidavit of Ms Bazzo and a solicitor, Mr Robson.
The interlocutory application is in the nature of a stay of the notice issued by the Commissioner, pursuant to s 15 of the Administrative Decision (Judicial Review) Act 1977 (Cth) (ADJR Act), or for an extension of time in which to comply with the notice, pursuant to the Court’s power under s 16 of the ADJR Act. A declaration is sought, as is an injunction to restrain the Commissioner from relying upon the notice.
The power exercised by the Commissioner in this matter arises under s 255-100(1)(b) of Schedule 1 of the Taxation Administration Act 1953 (Cth), which provides:
255-100 Commissioner may require security deposit
(1)The Commissioner may require you to give security for the due payment of an existing or future *tax related liability of yours if:
(a) the Commissioner has reason to believe that:
(i)you are establishing or *carrying on an *enterprise in Australia; and
(ii)you intend to carry on that enterprise for a limited time only; or
(b)the Commissioner reasonably believes that the requirement is otherwise appropriate, having regard to all relevant circumstances.
Note: A requirement to give security under this section is not a tax related liability. As such, the collection and recovery provisions in this Part do not apply to it.
A feature of tax-related liability is that it can include a liability that does not presently exist. It can be one which, on consideration of the events which are, or might happen in the future, gives rise to the possibility of a pecuniary liability to the Commonwealth under a taxation law. It is not necessary that a taxation liability presently exists, and I refer to the decision of the Full Court of this Court, in Keris Pty Ltd (Trustee) v Deputy Commissioner of Taxation (2017) FCAFC 164, at [92]-[93].
In this matter, the Commissioner issued the notice to Fastbet Investments Pty Ltd (Fastbet) on 19 September 2017. The notice sets out what appears to be the circumstances relied upon by the Commissioner initially and why the Commissioner perceived that it was appropriate for such a notice to be issued. Those observations are also supported by some reasons, which have been set out in an affidavit of Mr Ross Burns, sworn on 23 October 2017. In general, they reflect those matters set out in the notice.
It is not appropriate to set out the full discussion which appears in the notice, but it is necessary that some aspects of the notice should be identified. In particular, the Commissioner relied upon circumstances pertaining to the sole director of Fastbet, Ms Tina Bazzo. In the notice and in the reasons, he identified that Ms Bazzo has, in the past neglected to meet her own taxation liabilities and, importantly, has been a director of other companies which have neglected their taxation liabilities. In particular, the notice identifies that the Commissioner referred to and relied upon the following matters:
(a)That Ms Bazzo had been non-compliant in relation to her personal taxation obligations.
(b)That Ms Bazzo herself owes more than $13.8 million in personal taxation liabilities.
(c)That Ms Bazzo is presently being prosecuted in relation to two alleged taxation offences.
(d)That numerous companies have been non-compliant with respect to their taxation obligations when they were under the control of Ms Bazzo, and this has resulted in those companies failing to pay tens of millions of dollars of taxation, to the Commissioner.
I apprehend that some examples are identified as follows:
(a)Gundaroo Investments Pty Ltd, which apparently incurred more than $3 million of unpaid taxation liabilities while Ms Bazzo was a director.
(b)Ankfar Pty Ltd incurred more than $1.6 million of unpaid taxation liabilities while Ms Bazzo was a director.
(c)Parliament Place Pty Ltd incurred more than $1 million of unpaid taxation liabilities while Ms Bazzo was a director.
(d)Ms Bazzo was also the sole director of a company formerly called Gucce Holdings Pty Ltd, which is now called GH1 Pty Ltd. That company apparently incurred more than $73 million worth of unpaid taxation liabilities, whilst Ms Bazzo was a director. That company, in 2015, sold some of its property to a third party, but permitted approximately $3.3 million of its proceeds to be paid to a third party entity, which was another company owned by Ms Bazzo.
(e)The Commissioner also referred to Paramount View Pty Ltd, which was a company which incurred more than $580,000 of unpaid taxation liabilities while Ms Bazzo was a director.
The Commissioner relies on some other dealings in relation to companies controlled by Ms Bazzo, including the fact that, following the commencement of GH1’s administration, Ms Bazzo lodged various documents with ASIC, which asserted that various shares, apparently owned by GH1, had been transferred to other companies controlled by her. The Commissioner further referred to the fact that Ms Bazzo is a director of more than a dozen other companies which, collectively, have more than 20 outstanding income tax returns or business activity statements. That recitation from the notice is not the full extent of the Commissioner’s concerns, but it is probably sufficient for present purposes.
In the notice, which the Commissioner has given to Fastbet, the Commissioner asserts that the requirement to give security is appropriate, because he perceived there to be a risk that Fastbet will not pay a sum of $6.895 million of tax-related liabilities, which it is expected to incur from its property development activity. The Commissioner identifies in the notice and in the reasons that the risk arises because Ms Bazzo has demonstrated a disregard for some important taxation obligations incurred by companies under her control, by her personal failings to meet her taxation liabilities and her failings to lodge returns on time.
It is apparent that Fastbet is a development company and is in the process of developing various parcels of land by subdividing them into smaller portions and disposing of the same, presumably in the retail market. Whilst it’s not presently clear from the material, it appears that Fastbet has gone some considerable distance in developing at least some portions of the land, and it is presently engaged in the sale of parcels of land.
The application today is, in effect, an application for the granting of an interlocutory injunction, or at least a stay in relation to the impact of the notice. The matters which must be satisfied on an application of this nature are well known. Necessarily, the first step is that there is a serious question to be tried and the second step is the balance of convenience factors. Within that second aspect, of course, is the question of whether any party would suffer irreparable harm, such that damages would be an inadequate remedy if the injunction or stay were or were not granted.
Turning to the first issue of the prima facie case – the main argument advanced by the applicant today seemed to focus on the amended paragraphs of the proposed amended originating application. One major point which arises is the assertion that the notice is invalid because, since the notice has been issued, some of the parcels of land over which the Commissioner seeks security have been sold by the applicant, such that the applicant cannot now comply with the notice. The evidence in relation to this matter is very sparse for an application of this nature. In effect, all that appears is that, since the notice was issued, two parcels of the 18 parcels identified in the notice have been disposed of by Fastbet.
The applicants assert this gives rise to a number of matters, apparently going to the validity of the notice, and it is put variously that the Commissioner was under a duty to make an amendment to the notice, stay the notice, or otherwise remake his decision. Reliance was placed on the decision of Comptroller-General of Customs and Anor v Kawasaki Motors Pty Ltd (No 1) (1991) 32 FCR 219 and, in particular, the decision of Beaumont J. That case, however, concerns a circumstance where a decision-maker becomes aware that the factual substratum on which the decision was made was wrong when the decision was made. It is then, as his Honour identified, incumbent upon the decision-maker to remake that decision. That is not relevant in these circumstances. Here, it seems to be accepted that the factual substratum was correct when the decision was made, that is, that the properties were, in fact, owned by Fastbet. Indeed, Mr Burns deposes that a search of the relevant land title register was conducted and the parcels of land were identified as being owned by Fastbet. I am not aware and counsel for the applicant has not been able to identify any decision which renders the efficacy of an administrative decision invalid or beyond jurisdiction when facts occur after the making of the decision which might, if they existed before the decision, mean a different decision would have been made.
It should be mentioned in this context that, in the absence of any clear evidence about the transfer, it is difficult to know whether the applicant had received the notice from the Commissioner indicating the requirement that it provide security over those parcels before it sold the two parcels in question. As I say, it’s not particularly clear in the present circumstances; however, I do not think that is ultimately required to be decided. All that needs to be considered is that, in terms of the reasonableness of the decision, at the time the Commissioner made it, he was aware that Fastbet owned the parcels of land.
The suggestion from the applicant is that the consequence of the disposal of the parcels of land after the notice was issued renders the notice defective, and the Commissioner then is necessarily required to undertake some remediative action. Again, I cannot see that there is anything in the authorities which would support that proposition.
The other major ground relied upon by the applicant is that the notice is somehow unreasonable because it has been granted over the whole of the applicant’s property. In the proposed amended originating application, it is said that the granting of the mortgage over the whole of the applicant’s property operates to shut down the applicant’s business of selling subdivided lots of land. It seems to be said that this means that the notice is excessive, having regard to the applicant’s business.
As Mr Schulte for the Commissioner pointed out, there is very little evidence relating to that. Whilst there may be evidence that the mortgages sought by the Commissioner are over all of the real property assets of Fastbet, it’s not immediately clear that it’s over all of the applicant’s property, but even if it were, it does not necessarily follow that such a notice is excessive, and I should say, the question of reasonableness is one of objective reasonableness by the Commissioner in the circumstances of the case. Of course, the Commissioner in this matter must consider all the circumstances.
On the assumption that the notice is, in fact, over all the property owned by Fastbet, one would then have to consider the circumstances in relation to the matter. They are, in part, as I have indicated earlier, set out by the Commissioner. It would appear, on the facts as asserted by the Commissioner – which do not appear to be contested in any way by the applicants – that there would be a significant risk to the Commissioner recovering tax-related liabilities in the future from Fastbet.
At present, its sole director is a person who, according to the facts asserted by the Commissioner is a person who neglects to cause companies operated by her to comply with their taxation liabilities and, in the case of GH1 Proprietary Limited, to a substantial extent. So not only did the Commissioner take into account a substantive taxation liability which was unpaid, in that case, in the sum of $73 million, but there were a number of other companies which engaged in the same conduct. So it must be in those circumstances that the question of the extent of the security is considered.
Nothing that was shown to me on the available evidence has dislodged the conclusion, even in a prima facie way, reached by the Commissioner as to the appropriateness of the scope of the security.
One might also add that the existence of a security over real property does not hinder the operation of the business. This security will only come into play or have effect when the property is sought to be sold. On that occasion, then, the taxpayer needs to secure the release of the mortgage by the Commissioner, and no doubt, circumstances may arise in which the mortgage will be released. By itself, it does not seem to operate to shut down the applicant’s business. I was not taken to the terms of any security which might suggest that would occur. Whilst it is true that a security of that nature may hinder a building company from raising capital or equity, nothing was pointed to in the evidence to suggest that had occurred in this case. Ultimately, the grounds sought to be agitated by the applicant in that respect were unsupported by the evidence.
Submissions were made by the applicant that the Commissioner of Taxation should be limited to obtaining security in respect of what he perceives to be the yearly or annual tax-related liabilities of a taxpayer. The foundation of that appeared to have some reference to annual taxation liabilities of ordinary taxpayers. That, of course, really does depend upon the circumstances of the case, in the sense that it is commonly known that quarterly business activity statements are made and payments made accordingly. I do not think that there is any aspect of the annual issuing of assessments by the Commissioner which impacts upon the Commissioner’s ability to issue notices or to make assessments of what an annual taxation liability might be.
Moreover, even if that were so, there is no material before the Court which would suggest that the Commissioner could possibly identify the annual taxation liability of this company. It’s a land development company, so the necessary consequence will be that it will sell land as and when it develops the parcels. It’s not immediately clear that such a matter could be ascertained by the Commissioner.
A further point was raised in the application that the power of the Commissioner to issue the notice exceeds the constitutional operation of the provision; that is, in the circumstances of this case, it is said that this amounts to an acquisition of property other than on just terms under the Constitution and was invalid. Mr Fickling very properly acknowledged that this question has been discussed and rejected by the Full Court of this Court (Greenwood, McKerracher and Moshinsky JJ) in Keris at paragraph [146] to [147]. I am bound by the Full Court, but it is apparent that Mr Fickling makes the submission on the basis that the matter will probably go further, where that issue might be further contested.
It seems a difficult proposition, nevertheless, in circumstances where all that the Commissioner acquires is a charge over property owned by the taxpayer, but that, no doubt, is a matter which would require further submissions. I should mention that no notices under s 78B of the Judiciary Act 1903 (Cth) have been issued in this case, but I rely upon s 78B(5), given that this was raised in the course of an urgent interlocutory application in respect of which there was very little time.
Ultimately, I have found it difficult to identify any prima facie case which the applicant has established in the circumstances. If am wrong in relation to that, it would be appropriate that I consider the question of the balance of convenience. If the injunction is not granted, there appears to be a real risk that the Commissioner will fail to recover the revenue that is due to the Commonwealth. That risk arises by the conduct of Ms Bazzo in the past, and in particular, and on the evidence as it appears presently - which, I reiterate, has not been tested – Ms Bazzo has operated companies in a way that the taxation liabilities are not met, and the companies have apparently been left to be wound up in insolvency or otherwise dealt with without any ability to pay their taxation liabilities.
The evidence shows a very strong risk that such events could occur in this case, if the injunction is not granted. I also mention that it appears, from the affidavit of Mr Burns, that there is a risk that Ms Bazzo may secure or create charges over the land owned in favour of her company’s two related entities in an attempt to keep the Commissioner at bay.
In relation to the applicant, no real evidence exists of any irreparable harm in relation to the operation of its business. That is a matter which I have dealt with before. The major point for the applicant is that, given that it is no longer in possession of certain property – that is, the two parcels of property which were disposed of since the issuing of the notice – it is at risk of criminal prosecution if it does not, by the due time, provide securities over that land. That risk does arise by the refusal to grant the injunction in one sense, but in one sense only. That is, that the applicant disposed of those two parcels of land after the issuing of the notice. If it is now not able to provide the security required under the notice, that is a matter of its own making and not one of the refusal to grant the injunction. Circumstances may vary, and it may be that if it had no notice that the notice had been issued by the Commissioner and it is unable to comply with the notice, that is a different proposition. However there is simply insufficient evidence to reach a conclusion on that, other than that which I have identified.
In the consequence, I do not consider that there is any irreparable damage which might be suffered by Fastbet Investments in the circumstances of this case. Some other matters were raised by the applicant, although they were generally of a lesser nature. Some related to the notice provisions, but it appears that the notice was in compliance with the Act, at least in terms of its form. It does not appear that it is in any way uncertain as to what has to be done under the notice. The events which occurred might make it difficult for the applicant, but it is certainly not a question of uncertainty.
In the circumstances, the orders I propose are that I will allow the application to amend the originating summons in the form marked, which was delivered and dated 24 October 2017. I dismiss the application for interlocutory relief.
The costs of the application should follow the event, as Mr Fickling rightly conceded. The applicant shall pay the Commissioner’s costs of and incidental to today’s application.
I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington. Associate:
Dated: 24 October 2017
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