Felkro Nominees Pty Ltd v Deputy Commisioner of Taxation of the Commonwealth of Australia
[1996] FCA 785
•4 SEPTEMBER 1996
CATCHWORDS
CORPORATIONS - Winding up - Statutory demand - Whether offsetting claim - Dismissal of application to set aside demand - Appeal - Injunction to restrain winding up proceedings pending outcome of appeal - Principles applicable.
Corporations Law ss 459G, 459H
Wilson v Church [No 2] (1879) 12 Ch D 454
Alexander v Country Credit Corporation Ltd (1985) 2 NSWLR 685
Northern Territory v Mengel (1995) 129 ALR 1
Naismith v McGovern (1953) 90 CLR 336
FELKRO NOMINEES PTY LTD (ACN 005 574 514) v DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA VG 3661 of 1995
COURT:Sundberg J
PLACE:Melbourne
DATE:4 September 1996
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No VG 3661 of 1995
GENERAL DIVISION )
BETWEEN:FELKRO NOMINEES PTY LTD (ACN 005 574 514)
Applicant
AND:DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
COURT:Sundberg J
DATE:4 September 1996
PLACE:Melbourne
MINUTES OF ORDER
The Court orders that:
The motion notice of which was filed on 22 August 1996 be dismissed.
The applicant pay the respondent's taxed costs of the motion.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No VG 3661 of 1995
GENERAL DIVISION )
BETWEEN:FELKRO NOMINEES PTY LTD (ACN 005 574 514)
Applicant
AND:DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
COURT:Sundberg J
DATE:4 September 1996
PLACE:Melbourne
REASONS FOR JUDGMENT
SUNDBERG J:
Background
In October 1995 the respondent served on the applicant ("Felkro") a statutory demand under s 459E of the Corporations Law. The sum demanded, $289,867.65, comprised $242,221.36 for sales tax, additional tax and penalties, and $47,646.29 for income tax and additional tax.
On 6 November 1995 Felkro applied under s 459G to set aside the statutory demand. The material in the affidavits in support of the application formed the basis of a proceeding commenced by Felkro against the Commonwealth and a former Treasurer, Mr Dawkins, on 17 June 1996, the day before the s 459G application came on for hearing. The following
summary of the statement of claim discloses the grounds upon which Felkro claimed there was a genuine dispute and an offsetting claim within s 459H(1).
(a)Felkro manufactures paper products made from raw recycled paper.
(b)Felkro purchased raw recycled paper from Austissue Pty Ltd.
(c)Prior to 26 June 1992 paper products made in Australia from raw recycled paper were exempt from sales tax.
(d)As from 26 June 1992 paper products made from raw recycled paper lost their exemption from sales tax.
(e)In September 1992 the Commonwealth established a scheme of transitional assistance or bounty to assist Australian producers of 100 per cent recycled paper products adversely affected by the removal of the exemption.
(f)The bounty scheme involved payments by the Commonwealth to State governments over a three year period for passing on to the producers - in effect a 100% rebate of tax in the first year, 75% in the second and 50% in the third year.
(g)The intention of the scheme was to allow the producers to sell their products at a price which in the first year was the same as the price of the goods if totally exempt from tax, in the second if exempt from 75 per cent of the tax and in the third year if exempt from 50% of the tax.
(h)By reason of the foregoing the applicant is entitled to receive bounty payments under the scheme.
Then follow alternative claims.
The first is that the respondents represented to Felkro that it was entitled to bounty payments, and as a result of Felkro's reliance thereon the respondents are estopped from denying that Felkro is entitled to payments.
(j)The second alternative is that the respondents misrepresented the effect of the bounty scheme by stating that manufacturers of raw recycled paper products were entitled to bounty payments, and that the entities which were liable to pay sales tax in respect of the wholesale sale of the products were to be the recipients of the bounty. The respondents owed Felkro a duty of care to state the effect of the scheme accurately. In breach of duty the respondents misstated its effect, which was that the producers of the paper, not the producers of the products, were to be the recipients. As a result Felkro suffered loss.
(k)The third alternative is that Mr Dawkins, who administered the scheme, committed the tort of misfeasance in a public office. It was his duty under the scheme to authorise payments to Felkro. Contrary to the scheme, he authorised payments to Austissue of money that should have been paid to Felkro. Mr Dawkins knew that Felkro was entitled to the payments. He also knew that Austissue was not entitled to them, alternatively was reckless in authorising the payments to Austissue.
It is then contended that Felkro is entitled to set off the damage it has suffered, namely $1,050,699, against the amount claimed in the statutory demand.
Jenkinson J
The s 459G application was dismissed by Jenkinson J. Omitting one sentence which is not material to the present application, his Honour's judgment was as follows:
I should think that the expression most favourable to the applicant in these cases is that which Lockhart J specified in Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) ACSR 37, at 39 when he said that the Court must be satisfied that there is a dispute that is not "plainly vexatious or frivolous".
In this particular case, on material which emanates almost wholly from agents of the applicant, these claims are, in my view, disclosed to be frivolous and vexatious. I am satisfied that there is no genuine dispute and no genuine offsetting claim. And, as I indicated, that appears from material which emanates from agents of the applicants, almost exclusively.
Felkro has appealed to the Full Court from the dismissal of the s 459G application. The grounds are that Jenkinson J erred in not finding there was a genuine dispute within s 459H(1)(a) and an offsetting claim within s 459H(1)(b). The appeal will probably be heard in February 1997.
The present application
Felkro seeks an injunction restraining the respondent until the determination of the appeal or further order from commencing winding up proceedings in reliance on the statutory demand. The material relied on is that which was before Jenkinson J together with the notice of appeal and correspondence leading to the making of this application.
Although they did not abandon the other claims made before Jenkinson J, on this application counsel for Felkro contended only that Felkro had an offsetting claim under s 459H(1)(b). They submitted that Felkro had at least an arguable case for relief under one or more of the causes of action in its statement of claim in the proceeding against the Commonwealth and Mr Dawkins. Reliance was placed on Bercove v Hermes [No 2] (1983) 51 ALR 105. In that case an application for judicial review had been dismissed by Morling J. The applicant appealed to the Full Court. He sought an injunction restraining the Public Service Board, pending the outcome of the appeal, from considering a recommendation that he be dismissed from the Public Service. Toohey J granted the application. His Honour appears to have adopted and applied the observation of Cotton LJ in Wilson v Church [No 2] (1879) 12 Ch D 454 at 458 that "when a party is appealing, exercising his undoubted right of appeal, this court should see that the appeal, if successful, is not nugatory". He granted the injunction in reliance on three factors: before the matter came before Morling J the Board had consented to an order restraining it from recommending the applicant's dismissal; before the appeal to the Full Court was instituted the Board had agreed not to recommend dismissal pending the outcome of the appeal; and the hearing of the appeal was imminent.
Applicable principle
In order to obtain the relief it seeks Felkro must show there is a serious question to be tried and that the balance of convenience favours the grant of a restraint. In the present case the former enquiry is directed to the prospects of Felkro's success on the appeal from Jenkinson J. Decisions on the granting of a stay pending appeal adopt a test similar to the serious question test. In Alexander v Country Credit Corporation Ltd (1985) 2 NSWLR 685 at 695 the Court of Appeal (Kirby P, Hope and McHugh JJA) said:
Two further principles can be mentioned. The first is that where there is a risk that the appeal will prove abortive if the appellant succeeds and a stay is not granted, courts will normally exercise their discretion in favour of granting a stay .... Secondly, although courts approaching applications for a stay will not generally speculate about the appellant's prospects of success, given that argument concerning the substance of the appeal is typically and necessarily attenuated, this does not prevent them considering the specific terms of a stay that will be appropriate fairly to adjust the interests of the parties, [nor] from making some preliminary assessment about whether the appellant has an arguable case. This consideration is protective of the position of a judgment creditor where it may be plain that an appeal, which does not require leave has been lodged without any real prospect of success and simply in the hope of gaining a respite against immediate execution upon the judgment.
The main claim
Felkro's principal claim is that it is entitled to receive bounty payments under the scheme. It seeks a declaration that the Commonwealth is "liable at law to make bounty payments" to it pursuant to the scheme. The scheme is contained in letters from Mr Dawkins to the State Premiers in December 1992. The letter sent to the Premier of Western Australia, where Austissue carries on business, describes the essence of the scheme as follows:
... the Commonwealth is prepared to make payments to any State Government for the purpose of providing transitional assistance to companies located in its State which as at September 1992 were in a similar position as Austissue, that is, specialist procedures of those 100 percent recycled paper products affected by the sales tax amendment. However, any such arrangements are to be restricted to specialist recycled paper producers and will not apply to companies that merely convert recycled paper into the final product.
The scheme that was in fact implemented is reflected in Felkro's pleading in its action against Austissue, which can be summarized as follows:
(a)In September 1992 Felkro and Austissue became aware that their submission to the Australian Government had been unsuccessful, that sales tax would be imposed and that the bounty would be paid to Austissue.
(b)During 1992 an agreement was made between Felkro and Austissue that Austissue would pay Felkro the whole of the benefit of the bounty so as to offset the newly imposed sales tax.
(c)In breach of the agreement Austissue has failed to allow Felkro the benefit of the bounty.
In an affidavit sworn by the then Senator Coulter and filed in the Austissue proceeding on behalf of Felkro, the Senator states:
9.It was always a condition of the Bounty, although not reflected in any legislation, that payments made by the Government under the Bounty would end up with the entity liable to pay the newly imposed 20 per cent sales tax, which would be [Felkro] in the case of the business relationship between [Felkro] and [Austissue] ....
10.The position as to how the Bounty would operate and the conditions as set out in paragraph 9 hereof were acknowledged by both the Applicant and the Respondent in discussions with me prior to its implementation and any payments received under the Bounty were subject to these conditions.
11.If [Austissue] has not passed on to the [Felkro] payments which it has received under the Bounty ... then [Austissue] has acted contrary to the conditions of the Bounty of which it was aware and agreed to and in turn received a windfall gain under the Bounty never intended by the Government.
It is thus clear that the terms of the scheme do not entitle Felkro to any payment by the Commonwealth, that Felkro has acknowledged that the bounty was to be paid to Austissue, that it made an agreement with Austissue whereby Austissue would pass on the bounty to it, and that the facilitator of the scheme, Senator Coulter, understood that payment would be made to the manufacturers of the recycled paper who would pass it on to the manufacturer of products made from the paper. That much seems to have been conceded by Felkro before Jenkinson J. The transcript records Felkro's counsel saying - "the position taken by the applicants is that Austissue in effect was the collector ... of the bounty and the bounty should have been passed on to Felkro".
On the main claim there is not, in my view, a serious question to be tried. Nor in my opinion does Felkro have an arguable case (Alexander v Cambridge Credit).
Estoppel
In order to succeed in its estoppel claim, Felkro will have to establish that it incurred the expenditure and took the steps set out in its pleadings in reliance on representations made by the Commonwealth and Mr Dawkins to the effect that Felkro was entitled to bounty payments. However, it is clear from Felkro's own pleadings in the Austissue action that it was aware from September 1992 that under the scheme the Commonwealth would be paying the bounty to Austissue and not to it. On its own story, since September 1992, Felkro has been under no misapprehension as to the identity of the recipient of the payments. There is no serious question to be tried, and no arguable case, on the estoppel cause of action. I have assumed, without deciding, that if Felkro were able to show reliance, an estoppel could arise in a case such as the present. Cf Wade and Forsyth, Administrative Law 7th ed (1994), 268 et seq.
Negligent misrepresentation
Although it is not pleaded in the Commonwealth action, reliance is an essential component of this cause of action. Ever since September 1992 Felkro has been aware that it would not be receiving bounty payments from the Commonwealth, and that if it were to receive anything arising out of the scheme, it would have to rely on its agreement with Austissue, or if no agreement had then been made, it would have to come to some agreement with Austissue. In the Austissue action the agreement is simply alleged to have been made "during September 1992". It may have been made contemporaneously with the discovery that Austissue was to receive the payments, or later. In any event, any expenditure incurred or obligations entered into by Felkro after September 1992 were not incurred or entered into in reliance on any belief that it was to receive payments from the Commonwealth, though they may have been incurred or entered into in the belief that, pursuant to an agreement between it and Austissue, it would receive money from Austissue. There is no serious question to be tried, and no arguable case, on this alternative claim.
Misfeasance in public office
This claim is made against Mr Dawkins alone. In order for liability to attach under this tort the officer must intend to cause harm or must knowingly act in excess of his power: Northern Territory v Mengel (1995) 129 ALR 1 at 17. The case pleaded is that Mr Dawkins knew when he authorised payment to Austissue that Felkro was entitled to the payment and not Austissue. But it is clear that the scheme in fact provided for bounty payment to be made to producers of raw recycled paper and not the manufacturers of products made from raw recycled paper. There is thus no serious question to be tried, and no arguable case, that Mr Dawkins had no power under the scheme to authorise payment to Austissue. The truth is that he had no power under the scheme to authorise payment to Felkro.
Conclusion
Felkro has not shown that there is a serious question to be determined on the appeal, or that it has an arguable case that Jenkinson J was wrong. In what I have written I have assumed in favour of Felkro, without deciding, that success in an action against the Commonwealth and Mr Dawkins would entitle it to set off the amount recovered against the claim for sales tax and income tax made by the Commissioner of Taxation. Cf Naismith v McGovern (1953) 90 CLR 336 at 342.
I certify that this and the preceding nine pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg
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Associate
4 September 1996
Counsel for the Applicant: J A Strahan QC and T J Rosen
Solicitor for the Applicant: David Chapman
Counsel for the Respondent: C M Maxwell
Solicitor for the Respondent: Australian Government Solicitor
Date of Hearing: 29 August 1996
Place of Hearing: Melbourne
Date of Judgment: 4 September 1996
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