Frontlink Pty Ltd v The Commissioner of State Revenue, Victoria
[2015] VSC 329
•9 July 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2014 06896
| FRONTLINK PTY LTD | Plaintiff |
| v | |
| THE COMMISSIONER OF STATE REVENUE, VICTORIA | Defendant |
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JUDGE: | Efthim AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 April 2015 |
DATE OF JUDGMENT: | 9 July 2015 |
CASE MAY BE CITED AS: | Frontlink Pty Ltd v The Commissioner of State Revenue, Victoria |
MEDIUM NEUTRAL CITATION: | [2015] VSC 329 |
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CORPORATIONS – Winding up – statutory demand – Application to set aside statutory demand – Discretion to set aside statutory demand for “some other reason” – Corporations Act2001 (Cth) s 459J(1)(b) – Whether the plaintiff secured the debt the subject of the statutory demand to the reasonable satisfaction of the defendant – Whether the defendant acted unconscionably in making a misleading and deceptive representation regarding securing the total amount of the debt - Taxation Administration Act 1997 (Vic) s 117(1) – Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Korman | Belleli King & Associates |
| For the Defendant | Mr T Tucker | State Revenue Office |
HIS HONOUR:
The plaintiff, Frontlink Pty Ltd, applies to set aside a statutory demand served on it by the defendant, the Commissioner of State Revenue, Victoria (‘the Commissioner’). The demand claims that the plaintiff is indebted to the Commissioner in the sum of $2,688,682.96 for unpaid land tax.
In response to receiving the statutory demand, the plaintiff’s solicitors wrote to the Commissioner informing him that pursuant to para 3(b) of the statutory demand, the plaintiff was entitled to satisfy the demand by securing or compounding the debt. The plaintiff offered to charge the land at 127 Pound Road, Clyde North (‘Pound Road’) in the full amount of the debt claimed in the statutory demand. The value of Pound Road for Land Tax purposes is in the sum of $23,280,000 and the only encumbrance on the land is a statutory charge in favour of the Commissioner in relation to unpaid land tax pursuant to s 96(1) of the Land Tax Act 2005 (Vic).
In response, the Commissioner confirmed that he was unwilling to withdraw the statutory demand seeking payment of the $2,688,682.96. The Commissioner required cleared funds to satisfy the demand and could not accept security in satisfaction of the demand.
The Plaintiff’s Grounds
The plaintiff submits that the statutory demand should be set aside pursuant to s 459J(1)(b) of the Corporations Act 2001 (Cth) (‘Corporations Act’) which provides:
(1)On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:
…
(b)there is some other reason why the demand should be set aside.
The plaintiff relies on the following grounds:
-the demand has been satisfied by the plaintiff securing to the Commissioner’s reasonable satisfaction, the total amount of the debt; or
-the Commissioner has acted unconscionably in recklessly or deliberately making a misleading and deceptive representation that he requires the plaintiff to secure the total amount of the debt, in circumstances where he in fact prohibits the plaintiff from so doing; or
-the Commissioner is attempting to subvert the statutory scheme by issuing a statutory demand in circumstances where he cannot accept security of any kind for the total amount of the debts.
Reasonable Satisfaction
Paragraph 3 of the statutory demand states:
The Creditor requires the Company, within 21 days after service on the Company of this demand:
(a)to pay to the Creditor the total of the amounts of the debts, or
(b)to secure or compound for the total of the amounts of the debts, to the Creditors’ reasonable satisfaction.
In Commonwealth Bank of Australia v Parform Pty Ltd,[1] Sundberg J considered the phrase ‘to the creditor’s reasonable satisfaction’. His Honour said:
The words “to the creditor’s reasonable satisfaction” seem to me to posit an objective test. In other words, where the debtor puts up a proposal which the creditor rejects, it is for the court to decide whether in rejecting it the creditor was acting reasonably in all the circumstances. If the test were wholly subjective, the legislature would have employed the phrase “to the creditor’s satisfaction.” In my view, the Bank acted reasonably in rejecting the offer. There was nothing in the letter or in the circumstances surrounding the offer that gave the Bank any assurance that Parform would be able to pay the balance within the 30 day period. Accordingly, Parform did not within the 21 day period compound for the amount of the debt to the Bank's reasonable satisfaction.
[1][1995] 13 ACLC 1309.
The plaintiff submits that the court should find that it has secured the debt the subject of the statutory demand to the reasonable satisfaction of the Commissioner and therefore the demand has been satisfied. It says the Commissioner does not suggest that the security is inadequate in quantum or quality, or that the Commissioner is not satisfied that the charge provided is adequate to secure the plaintiff’s debt.
The Commissioner submits that the debt was not secured to his reasonable satisfaction because:
(a) he expressly refused to accept the plaintiff’s charge in lieu of payment of the debt;
(b) the charge offered the plaintiff nothing more than what he already has, because unpaid tax is a first charge on the land pursuant to s 96(1) of the Land Tax Act 2005 (Vic);
(c) section 117(1) of the Taxation Administration Act 1997 (Vic) states that tax may be paid by cash or by any other means approved by the Commissioner. Here, the Commissioner has expressly stated that the debt must be paid by clear funds;
(d) a third party has made a part‑payment of the debt after this proceeding was filed, which infers the plaintiff’s intention to satisfy the demand via payment in cash in accordance with s 117(1)(a) of the Taxation Administration Act 1997 (Vic); and
(e) the plaintiff has a history of default, as demonstrated by its application to set aside a previous demand issued by the Commissioner dated 10 July 2013 in this court, and this history warrants the plaintiff’s reasonable apprehension to accept a charge in lieu of payment.
The Commissioner’s first two submissions can be dealt with together. The Commissioner has a statutory charge over all of the land to which the land tax relates pursuant to s 96(1) of the Land Tax Act 2005 (Vic). The plaintiff submits that the charge granted over Pound Road is a different security and additional to the defendant’s statutory charge. It is unclear what part of the debt has been apportioned to this land.
Here, the Commissioner does not want the security that is being offered, and one can presume that is because he has sufficient security. Objectively it would be reasonable for him not to accept the security, as it appears to add little if nothing at all to the security he already has.
In relation to the third submission regarding the Taxation Administration Act 1997 (Vic), I note that in On Time Nurses Agency Pty Ltd v Deputy Commissioner of Taxation,[2] Ferguson J referred to the court’s discretion to set aside a statutory demand under s 459J(1)(b) of the Corporations Act and the effect of legislative policy on the discretion to set aside a statutory demand. Her Honour stated:
The discretion under s 459J(1)(b) is broad and the circumstances which will give rise to “some other reason” to set aside the demand have not been prescribed either by statute or the case law.[3] Nor should the Court attempt to set out all the circumstances in which a demand might be set aside for some other reason.[4] This does not mean though that the discretion is at large such that a judge may set a demand aside simply because, subjectively, that judge is of the view that it is fair to do so.[5]
Some of the authorities have given examples of the types of situation where the discretion is likely to be exercised in favour of setting aside a demand for some other reason. They include situations where there are gross defects in the affidavit supporting the statutory demand; where the creditor, following service of the demand, has made representations which have induced the debtor to change its position; and where the creditor’s conduct is unconscionable, an abuse of process or gives rise to substantial injustice.[6] Where, as here, the statutory demand relates to a tax debt, one of the matters to be taken into account when exercising the discretion is the legislative policy relating to the recovery of tax debts as disclosed in the Taxation Administration Act 1953 (Cth). Under that Act, the fact that there is a review or appeal pending in relation to a taxation decision does not affect implementation of the taxation decision.[7]
[2][2010] VSC 573 at [7]–[8].
[3]Hoare Bros v Deputy Commissioner of Taxation (1996) 62 FCR 302; Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTA 3.
[4]Hoare Bros v Deputy Commissioner of Taxation (1996) 62 FCR 302; Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229 per Young CJ in Eq at p.240.
[5]Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229 per Young CJ in Eq at p.240.
[6]Meehan v Glazier Holdings Pty Ltd (2005) 53 ACSR 229 per Young CJ in Eq at p.240; Hoare Bros v Deputy Commissioner of Taxation (1996) 62 FCR 302; Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3.
[7]Taxation Administration Act 1953 (Cth) ss 14ZZM, 14ZZR; Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473.
In accordance with her Honour’s views, the policy of s 117(1) of the Taxation Administration Act 1997 (Vic) should be taken into account. That provision entitles the defendant to choose the means by which the tax is to be paid. The defendant has expressly stated that the debt must be paid by cleared funds. He has acted appropriately in refusing the charge.
As to the Commissioner’s fourth submission, the fact that a third party has made a part‑payment of the debt after this proceeding was filed, in my view, was a neutral factor in determining whether the Commissioner acted reasonably. The Commissioner is able to compromise. This may be a factor influencing the Commissioner, but takes the question of reasonableness no further.
As to the plaintiff’s final submission that the continuing default is said to be another factor, I note that there is no evidence of this before me other than an application to set aside a previous statutory demand in 2003. This is not a factor that I should take into account in determining whether the Commissioner can be reasonably satisfied.
Taking all of the above factors into account, it is my view that on an objective test, the Commissioner has acted reasonably in refusing to accept the charge.
Unconscionable conduct
The plaintiff relies on the Commissioner stating that he could not accept the security. The plaintiff submits that the defendant ought to have known that paragraph 3(b) of the statutory demand was misleading and deceptive, yet he refused to withdraw the demand.
In Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner for Taxation (‘Arcade’),[8] the Supreme Court of the Capital Territory Court of Appeal held that the other reasons contemplated by s 459J(1)(b) include conduct that may be described as unconscionable or an abuse of process which gives rise to substantial injustice. The plaintiff submits that the Commissioner’s conduct is unconscionable, as the Commissioner is recklessly or deliberately misleading and deceiving the taxpayer, if not in issuing the demand, then in refusing to withdraw it. In accordance with Arcade, the plaintiff argues that the Commissioner, as a manifestation of the Crown, should observe the highest standings. The Commissioner, in my view, has not acted unreasonably in refusing the security. He has every right to do so and is endeavouring to collect tax as he is required to do. In these circumstances he has not acted unconscionably.
[8][2005] 157 ACTR 22 at [27].
Abuse of process
The plaintiff alleges an abuse of process, because the statutory scheme requires debtor companies be given the opportunity to offer reasonable security in relation to the debt in satisfaction of the demand and said that the Commissioner issued a demand which appears to comply with the scheme but undermines it.
Again, I repeat that the Commissioner acted appropriately and there is no abuse here as there is no doubt he has not consciously or otherwise subverted the legislation. He has a duty to collect tax, and he is doing his duty. The plaintiff, by offering security after the demand has been served, is seeking to avoid the immediate payment of the tax. A statutory demand, if not complied, will lead to a presumption of insolvency. Here, there is no dispute that the money is owed and the plaintiff refuses to pay its tax. It should not be able to offer meaningless security as a way of avoiding its obligations to pay debts when they fall due.
Discretion under s 459J(1)(b) of the Corporations Act
In Paperlinx Limited v Skidmore,[9] Finkelstein J held that a statutory demand could be set aside for some other reason pursuant to s 459J(1)(b) where the demand had been satisfied. Here, the plaintiff submits that because reasonable security has been provided, the demand should be set aside pursuant to s 459J(1)(b) of the Corporations Act.
[9][2004] 51 ACSR 614.
Even if the plaintiff was able to demonstrate that the Commissioner should have accepted the charge and that the demand had been satisfied, I would not exercise the discretion under s 459J(1)(b) of the Corporations Act to set aside the demand.
The plaintiff is indebted to the Commissioner in the sum of $2,688,682.96. Counsel for the plaintiff conceded that there is no genuine dispute. Some of the debts have been outstanding since 2011 and the plaintiff merely seeks to give security over one property, which is different to the security that the Commissioner has, as the Commissioner has charges over all properties where land tax is payable. If this application was allowed, the Commissioner could either appoint a receiver or go to court and seek judgment in a case where there is no dispute and the debt is owed and then issue a statutory demand.
The court should not exercise its discretion under s 459J(1)(b) of the Corporations Act.
The application to set aside the statutory demand is dismissed.
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