Galaxy Coins and Bullion Pty Ltd v Deputy Commissioner of Taxation
[2018] VSC 728
•26 November 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2017 04067
IN THE MATTER OF GALAXY COINS AND BULLION PTY LTD (ACN 610 861 491)
| GALAXY COINS AND BULLION PTY LTD (ACN 610 861 491) | Plaintiff |
| v | |
| DEPUTY COMMISSIONER OF TAXATION | Defendant |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 February 2018, last submissions filed 14 March 2018 |
DATE OF JUDGMENT: | 26 November 2018 |
CASE MAY BE CITED AS: | Galaxy Coins and Bullion Pty Ltd v Deputy Commissioner of Taxation |
MEDIUM NEUTRAL CITATION: | [2018] VSC 728 |
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CORPORATIONS — Statutory demand — Application to set aside statutory demand under s 459G of the Corporations Act 2001 (Cth) — Application raised an alleged offsetting claim which was not possible to maintain at hearing of application — Plaintiff sought to amend application to include application that demand be set aside for ‘some other reason’ under s 459J(1)(b) relying on circumstances that had arisen since the making of the application and more than 21 days after service of the demand — Held that Graywinter principle prevented the making of amendment —Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Evans QC | Madgwicks Lawyers |
| For the Defendant | Ms C M Pierce | Australian Government Solicitor |
HIS HONOUR:
On 25 September 2017, the plaintiff (‘Galaxy’) was served at its registered office with a creditor’s statutory demand by the defendant, the Deputy Commissioner of Taxation (‘the DCT’) together with an affidavit of George Khouri sworn 21 September 2017.
The demand claims that Galaxy owes the DCT $827,880.52. The debt was said to be comprised of income tax liability of $802,678 for the year ended 30 June 2016 as per an assessment dated 15 May 2017 together with a liability of $25,202.02 arising under the general interest charge exacted pursuant to ss 5-15 of the Income Tax Assessment Act 1997 (Cth) (‘the ITAA 1997’) and part IIA of the Taxation Administration Act 1953 (Cth) (‘the TAA 1953’). The amount for interest was calculated up to and including 20 September 2017.
On 10 October 2017, Galaxy filed an originating process seeking an order that the statutory demand be set aside pursuant to s 459H(1)(b) of the Act. The application contends that Galaxy had an offsetting claim of $2,589,721 which was comprised of an asserted entitlement to a GST refund in that amount. By reason of events which Galaxy says have only occurred since the application was issued (and more than 21 days after service of the demand), Galaxy now seeks that its originating process be amended to also seek an order setting aside the demand pursuant to s 459J(1)(b) of the Corporations Act 2001 (Cth) (‘The Act’).
Galaxy relies on an affidavit of its sole director, Nichil Salib (‘Mr Salib’) sworn 10 October 2017. The DCT relies on an affidavit of George Khouri (‘Mr Khouri’) sworn 27 October 2017. At the hearing of this application on 13 February 2018 the DCT was given leave to rely on a further affidavit of Mr Khouri sworn 30 January 2018 and Galaxy was given leave to rely on an affidavit of Sawar Nasimi (‘Mr Nasimi’) sworn 9 February 2018.
The factual scenario in this matter is unusual. In succinct terms, Galaxy contends that on 10 October 2017, the date that the application to set aside the statutory demand was issued, it had an alleged offsetting claim against the debt claimed in the demand. That offsetting claim arose as a result of a business activity statement (‘BAS’) lodged by a company related to Galaxy, CPG Group Pty Ltd (‘CPG’), on 15 October 2016 which resulted in a GST refund, which CPG then assigned to Galaxy. On 5 December 2017, the Commissioner of Taxation (‘Commissioner’)[1] issued an amended assessment against CPG, which had the effect of depriving Galaxy of its offsetting claim.
[1]On occasion in the affidavit material the ‘Commissioner’ has been referred to interchangeably with the ‘DCT’.
At the hearing of this application, Galaxy accepted that the GST refund which it says was available at the time of the filing of its application cannot now constitute an alleged offsetting claim. Instead, it seeks to contend that the demand be set aside pursuant to s 459J(1)(b) of the Act and it seeks an amendment of the originating process to enable such an application to be made.
Section 459J(1)(b) provides that on an application under s 459G the court may by order set aside a demand if it is satisfied that ‘there is some other reason why the demand should be set aside’.
The parties agreed that the application to amend should be dealt with as a preliminary issue. The application involves a novel point as to whether the Graywinter principle prevents an amendment to the originating process to seek relief under s 459J(1)(b) based on events occurring more than 21 days after service of the demand when by reason of the circumstances, it was not possible to ‘raise’ those matters in the ‘21 day affidavit’.
At the hearing of this matter, I directed that the parties file supplementary submissions directed to the issue of whether the court had jurisdiction to make the proposed amendment and that has been done.
In my view, for the reasons which follow, the application should be dismissed.
Galaxy’s evidence in support of the application
In the only affidavit filed by Galaxy in the 21 day period after service of the demand, Mr Salib, the sole director of Galaxy, states that the company is involved in the sale of gold bullion. He contends that Galaxy has an offsetting claim against the debt claimed in the statutory demand.
In this regard, he states that he is also the sole director of CPG which was, until 5 October 2017, entitled to a refund from the DCT in respect of Goods and Services Tax in the sum of $2,589,721.00 for the tax period 1 September to 30 September 2016 (‘the refund amount’). CPG had lodged a BAS claiming an entitlement to be paid the refund amount in respect of that period by reason of CPG recording non capital purchases of $29,386,198. In that regard he states that he has been advised that CPG’s entitlement to the refund amount arises pursuant to s 8AAZLF of the TAA.
Mr Salib states that on 5 October 2017, CPG assigned its rights in the refund amount to Galaxy by a deed of assignment of that date. He states that his understanding is that once the refund amount was applied to the debt claimed in the statutory demand, the DCT would owe Galaxy a net amount of $1,761,840.48, being the balance of the refund amount after application of the offset.
The deed was executed by Mr Salib on behalf of both CPG and Galaxy. The deed is in short form. In paragraph C it provides:
In consideration of and upon payment of the sum of $1 (Consideration) by the Assignee to the Assignor on the date of execution of this Deed, which is acknowledged as having been paid, the Assignor hereby assigns and transfers absolutely the Assignor’s right, title and interest (both legal and equitable) in the Refund Amount, including all rights to be paid the Refund Amount by the DCT, to the Assignee.
CPG is identified as the Assignor and Galaxy the Assignee in the heading to the deed.
The DCT’s evidence
In his affidavit of 27 October 2017, Mr Khouri states that he is employed in the Significant Debt Management Resolution section of the ATO. He deposes to his familiarity with the record system maintained by the ATO in respect of Galaxy that records the tax liabilities, additional tax and penalties incurred by tax payers and the payments made by tax payers in reduction and in extinguishment of their tax liabilities. He describes the various systems maintained by the ATO in that regard.
Mr Khouri states that he has read the ATO records maintained in respect of Galaxy and CPG. He states that on 15 May 2017 Galaxy lodged its income tax return for the year ended 30 June 2016. Galaxy stated in its income tax return that the amount of tax payable in respect of the year ended 30 June 2016 was $802,678.50. As such, it was a ‘self‑assessed’ liability. Mr Khouri states that pursuant to s 166A(3) of the ITAA 1936 the Commissioner is taken to have made an assessment of Galaxy’s taxable income and tax payable on that income in accordance with the amount specified in Galaxy’s income tax return. The assessment is considered to have been made on the day the return was lodged, 15 May 2017 and the return is deemed to constitute a notice of assessment under the hand of the Commissioner and served on Galaxy on the day on which the Commissioner is taken to have made the assessment.
Mr Khouri states that as of 21 September 2017, Galaxy was indebted to the Commonwealth of Australia in the sum of $827,880.52 composed of an income tax liability for $802,678.50 for the year ended 30 June 2016 and $25,202.02 which was owing by reason of the imposition of the general interest charge.
Mr Khouri contends that there is no offsetting claim available to Galaxy. Mr Khouri states that in its BAS lodged in respect of the period 1 to 30 September 2016 CPG claimed that it was entitled to input tax credits for certain creditable acquisitions and claimed a refund of $2,589,721. On 28 October 2016 the Commissioner made a decision under s 8AAZLGA of the TAA 1953 to retain the refund claimed by CPG in the BAS for the month ended 30 September 2016 pending the verification of the information contained in the BAS and notified CPG of this decision by letter of same date. Mr Khouri states that at the time of swearing his first affidavit on 27 October 2017, the Commissioner had not issued the assessment to CPG in respect of the amount retained.
On 3 April 2017, CPG lodged an objection to the Commissioner’s decision to retain the refund. On 24 May 2017, the DCT demanded payment of $196,604.30 from CPG on account of its income tax liability for the year ended 30 June 2016. On 9 June 2017 the tax agent acting on behalf of CPG requested the DCT to defer recovery action against CPG and requested remission of the general interest charge in respect of CPG’s income tax liability. By letter dated 3 July 2017 the DCT advised CPG that’s its request for deferral of recovery action was denied and remission of general interest charge was refused.
On 14 July 2017 the tax agent acting for CPG requested the DCT to grant a ‘50:50 payment arrangement’ in respect of CPG’s income tax debt. The payment arrangement proposed payment of 50 percent of the assessed liability by instalments with the balance not being payable until completion of the audit process. The DCT refused to grant the 50:50 payment arrangement in a letter dated 1 September 2017.
On 18 September 2017, Madgwicks Lawyers, the solicitors for CPG wrote to the ATO and contended that the Commissioner was obliged to apply the amounts retained against CPG’s income tax liability. On 25 September 2017 the Commissioner disallowed the objection to his decision to retain the refund claim by CPG lodged on 3 April 2017. On 9 October 2017, CPG filed an application for review of the decision to the Commonwealth Administrative Appeals Tribunal (‘AAT’). On same date, the DCT responded to Madgwicks letter of 18 September 2017 and indicated that the current debit balance of CPG’s integrated client account was $7,127.36 DR and there was no available credit to offset CPG’s income tax liability. Madgwicks then responded by letter dated 13 October 2017 indicating the Commissioner was obliged to apply the GST refund amounts.
Mr Khouri concludes that at the date of making his first affidavit, CPG’s account with the ATO remained in debit and that there was no credit available to be transferred or utilised by CPG.
In his second affidavit dated 30 January 2018, Mr Khouri states that on 5 December 2017 the Commissioner issued to CPG a notice of amended assessment of net amount of $2,545,286 and a notice of assessment of shortfall penalty of $1,467,505.40 for the period 1 September 2016 to 30 September 2016.
Mr Khouri states that he is informed by Sue-Anne Thompson, a senior lawyer in the Melbourne office of the Australian Government Solicitor (‘AGS’), and believes that in a letter dated 13 December 2017 from the AGS to Madgwicks Lawyers, the Commissioner informed CPG that as an Assessment and an Amended Assessment had been issued on 5 December 2017, the application to the AAT seeking review of the decision in respect to the retention of refunds was rendered nugatory and invited CPG to withdraw its application to the AAT. The letter also noted that CPG had fresh rights of objection in respect of the Assessment and the Amended Assessment of 5 December 2017.
On 22 December 2017, CPG lodged notices of objection to the Amended Assessments of the net amount and the Notice of Assessments of Shortfall Penalty issued on 5 December 2017. That objection had not been determined as of 30 January 2018. Mr Khouri concludes that at the date of making his affidavit he had perused the ATO records which confirmed that CPG’s account with the ATO remained in debit and that there was no credit available to be transferred or utilised by CPG.
Galaxy’s evidence – post 21 day affidavit material
In his affidavit of 9 February 2018, Mr Nasimi, the solicitor having the conduct of this application on behalf of Galaxy, details the general background to the matter including the raising of amended assessments against CPG. While much of Mr Nasimi’s affidavit is not directly relevant to the preliminary question of whether the court should permit amendment of the originating process to enable the s 459J(1)(b) argument to be raised, I will set it out for completeness.
Mr Nasimi states that Galaxy is a retail dealer in gold. CPG is a related entity of Galaxy and is also involved in the gold industry. Its activities include the buying and selling and refining of scrap gold and it also sells the refined gold in various forms including bullion bars and medallions.
In addition to CPG and Galaxy, Mr Nasimi has acted for several years and continues to act as a lawyer for various gold and precious metals dealers throughout Australia. He states that in doing so he has had dealings with various members of the Australian Taxation Office. He contends that the Commissioner through these offices has through its decisions applied the law so far as it relates to gold inconsistently on different occasions. He states that he believes the inconsistency to arise by a reason of the interchangeable use of industry terms with everyday language and the misconception that words used in ordinary language have the same meaning when used by specialists in the precious metals trade. In essence ‘investment grade of precious metals’ (‘IGPM’) he states is the gold that satisfies the elements of Taxation ruling number GSTR2003/10 and non-IGPM, also known as ‘scrap gold’, is the gold that does not satisfy the requirements of Taxation ruling number GSTR 2003/10. Under the taxation laws and applying that ruling, the sale or supply of non-IGPM is considered by the Commissioner as a taxable supply and subject to GST, whereas the sale or supply of IGPM is considered to be GST free, pursuant to s 38-385 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) (‘the GST Act’).
Mr Nasimi describes the dealings that CPG has had with the Commissioner. Between September 2016 and December 2016, CPG lodged BAS with the Commissioner for the monthly tax periods ending 31 August 2016, 30 September 2016, 31 October 2016 and 30 November 2016. CPG claimed input tax credits during these periods for the creditable acquisitions of scrap non-IGPM gold in the course of its business. On 22 September 2016 the Commissioner notified CPG that it was retaining the GST refunds for the period ending 31 August 2016; on 28 October 2016 the Commissioner notified CPG that it was retaining the GST refunds for the tax period ending 30 September 2016; on 1 December 2016 the Commissioner notified CPG that it was retaining the GST refunds for the tax period ending 31 October 2016, and on 22 December 2016 the Commissioner notified CPG that it was retaining the GST refunds for the tax period ending 30 November 2016.
In March and April 2017, the accountant for CPG, Ms Burke, lodged notices of objections to the Commissioner’s decision to retain the August 2016 and September 2016 GST refunds. He states that in June 2017 Ms Burke lodged notices of objection to the Commissioner’s decision to retain the October 2016 and November 2016 GST refunds. Mr Nasimi states that despite responding promptly to the Commissioner’s request for further information and issuing notices of objections, CPG still had not received any reasons from the Commissioner for retaining the GST refunds. He states that he is instructed that between 1 June 2017 and 15 June 2017 Ms Burke wrote to the Commissioner complaining that he had had a considerable amount of time to verify the information available and to provide the reasons for his decision to retain the GST funds.
At the same time the Commissioner decided to retain the GST funds he also requested further information for the tax periods ending 31 August 2016, 30 September 2016, 31 October 2016 and 30 November 2016 and the tax period 1 October 2016 to 30 November 2016. CPG responded to these requests on 10 October 2016, 31 October 2016, 15 December 2016, 19 January 2016 and 22 March 2017 respectively. On 18 April 2017, the Commissioner requested further information on CPG’s stock and inventory for July and December 2016 and January to March 2017. CPG responded on 17 May 2017, stating that this information had already been provided on 10 October 2016.
On 9 June 2017 Ms Burke, on behalf of CPG, requested the Commissioner to withhold seeking further payment of the income tax debts or charging general interest charges until such time that the GST refunds were dealt with. Mr Nasimi states that this request was on the basis that the Commissioner was pursuing CPG for unpaid income tax debt while withholding a GST refund amount of $6,876,375.00 and that at that point the Commissioner had retained CPG’s GST refunds for approximately eight months but had not provided reasons for the retention of those refunds nor had the Commissioner provided an indication as to when those reasons would be provided.
The Commissioner wrote to CPG on 27 June 2017 stating that more documents were being reviewed for the tax periods ending 31 August and 30 September 2016 and that the documents relating to the tax periods ending 31 October and 30 November 2016 were yet to be reviewed. On the same day Ms Burke sent the Commissioner a letter in response stating that CPG have consistently responded to each of the Commissioner’s requests for further information in a timely manner and that the GST refunds were causing considerable emotional stress on the director of CPG. Mr Nasimi states that there was no response to that letter.
By letter dated 3 July 2017, the Commissioner refused to grant a deferral of recovery action and remission of general interest charges. The Commissioner stated that he refused the request on the grounds that he had concerns that neither CPG nor Galaxy could pay the amounts outstanding if the GST refund was not refunded.
On 7 July 2017 CPG lodged a complaint to the Inspector General of Taxation regarding the delay by the Commissioner to deal with the GST refund.
On 14 July 2017, in an email to the Commissioner Ms Burke requested that the parties enter into a payment arrangement to resolve the income tax debt. She proposed:
(a) the 50 per cent of the income tax debts be frozen until the completion of the audit with respect to the retention of the GST refund;
(b) 50 per cent of the income tax debt for both CPG and Galaxy be paid by way of monthly instalments of $10,000; and
(c) upon the GST refunds being paid to CPG that both CPG and Galaxy would increase their monthly repayments to $20,000 until the income tax debts were paid in full.
CPG did not receive a response from the Commissioner and so on 23 August 2017, Ms Burke forwarded the same email to the Commissioner a second time. He states that by letter dated 1 September 2017, the Commissioner rejected the payment arrangement proposal and that the reasons for rejecting it stated that the income tax debts were not disputed and the 50:50 payment arrangement was not available.
Mr Nasimi states that on his understanding of Part IIB Division 3 of the TAA the Commissioner was obliged to apply the GST refund and offset the income tax debts owed by CPG and Galaxy. He contends that in such circumstances where this obligation existed on the Commissioner it was not appropriate or necessary for Ms Burke to request deferral of recovery action or a payment proposal. He states that he is instructed and believes that CPG and Ms Burke were not aware of this obligation on the Commissioner and that had they known, they would not have negotiated a resolution with the Commissioner as it would not have been necessary.
On 13 September 2017, CPG instructed Madgwicks Lawyers to write to the Commissioner requesting a decision in relation to CPG’s notices of objection pursuant to s 14ZYA(1)(b) of the TAA 1953.
On 18 September 2017, CPG instructed Madgwicks to write to the Commissioner stating that the decision not to offset the GST refunds with the income tax debt appeared to be contrary to Part IIB Division 3 of the TAA 1953. Mr Nasimi states that there was no response to that letter.
On 2 October 2017, CPG instructed Madgwicks to write to the Commissioner requesting written reasons as to why the Commissioner had retained GST refunds under s 13(1) of the Administrative Decisions (Judicial Review) Act 1977 (Cth).
On 3 October 2017, CPG received the Commissioner’s objection decision of 25 September 2017.
Mr Nasimi states that in his objection decision the Commissioner stated that he had correctly exercised his decision to retain the GST funds for the following reasons:
(a) the information provided by CPG in relation to a small portion of its acquisitions (with Cash For Gold Australia Pty Ltd) required further verification as to its accuracy;
(b) the business activity statements were lodged by CPG in light of “known issues in the industry” and gave rise to a likelihood that the information was affected by fraud or evasion, intentional disregard or recklessness;
(c) the retention did not materially impact on CPG’s financial position;
(d) the extended period of time which the GST refunds were retained must be considered in light of the complexity of verifying the information; and
(e) the Commissioner has insufficient information to make an assessment.
On 9 October 2017, CPG filed an application for a review of the Commissioner’s objection decision with the AAT.
On 5 December 2017, the Commissioner issued CPG with Notices of Amended Assessments for the periods ending 31 August, 30 September, 31 October and 30 November 2016. The result of the Notices is that CPG owed a debt to the Commissioner of a sum in excess of $14,000,000.00 for amended net amounts as well as administrative penalties. The Notices of Assessment were accompanied by a document titled ‘Reasons for our Decision’ in which the Commissioner provides his reasons for issuing the Notices.
Mr Nasimi states that the Commissioner alleged in his reasons that:
(a) there was insufficient evidence that some of the contended acquisitions made from suppliers were made; and
(b) that the supplies of “precious material” by CPG did not satisfy section 195-1 and section 40-100 of the GST Act, in that they were not the first supply of that precious metal after refining by or on behalf of CPG.
In particular, Mr Nasimi states that the Commissioner alleged:
(a) that the vast majority of the gold acquired by the CPG for refinement was derived from the alleged adulteration of precious metal originally refined and supplied by CPG;
(b) adulteration is inferred from the fact the acquisitions of scrap gold made by CPG were similar in weight to the supplies of precious metal made by CPG;
(c) adulteration is further inferred from the fact that the directors of some suppliers had no prior experience in the gold industry, the principal place of business of the suppliers were residential addresses and the fact the directors of other entities have not engaged with the Commissioner to explain the transactions claimed by CPG;
(d) as a result of the alleged adulteration, the pure gold that CPG supplied was not “first supply” of that precious metal after refining.
On 22 December 2017, Galaxy lodged a notice of objection to the Commissioner notices and in the notice of objection it submits that it was entitled to income tax credits for all acquisitions made from suppliers, particularly those by Golden Angel Australia Pty Ltd. Galaxy also submitted that it and its agents took reasonable care to comply with the taxation law, were not reckless and did not intentionally disregard the operation of taxation law and for that reason is not liable to a penalty. Mr Nasimi states that at the time of making his affidavit he understands that Galaxy has not received a response from the Commissioner. He states when a response is received that Galaxy will consider filing an application for review of the objection decision with the AAT.
Finally, Mr Nasimi observes that a statutory demand was issued on 21 September 2017 and Galaxy filed its application with the Court on 10 October 2017 asserting an offsetting claim by virtue of the assignment of a portion of the GST refund. At that point he observes that the Commissioner had retained the GST funds for approximately twelve months and the income tax debts were outstanding for approximately four months. He states that since April 2017 the Commissioner has not made any further requests for information from CPG in relation to the GST refunds or otherwise and it was not until 5 December 2017 that the Commissioner issued the notices on CPG. He states that in the circumstances the notices appear only to have been issued after Galaxy’s set aside application was made and after CPG had filed an application to review the Commissioner’s objection decision with the AAT.
The expression ‘offsetting claim’ is defined in s 459H(5) to mean a genuine claim that the company has as opposed to will have or had against the creditor by way of counterclaim, set off or cross-demand (even if it does not arise out of the same transaction or circumstances as the debt to which the demand relates). The offsetting claim must exist as at the date of the hearing of the s 459G application so that an offsetting claim which arises after the demand is served, and even after the proceedings to set it aside are commenced but before the hearing, is to be taken into account.[2]
[2]See generally Farid Assaf, Statutory Demands and Winding Up in Insolvency, (LexisNexis Butterworths, 2nd ed, 2012) [6.4]; Noroton Holdings Pty v Sydney Land Corporation Pty Ltd [1999] NSWSC 192, [12] per Austin J. However, on an application of Graywinter, that dispute or claim would have to be raised in the ’21 day affidavit’.
In my view, as a corollary, an offsetting claim which might have existed at the time that the application to set aside the demand was filed but is no longer sustainable at the time of the hearing of the application cannot constitute an offsetting claim for the purposes of s 459H(5).
Mr Evans, senior counsel for Galaxy, accepted that it was not reasonably arguable that the offsetting claim arising from the assignment by CPG to Galaxy described above could constitute an offsetting claim at the date of the hearing of the application. He instead sought to amend the originating process to include an application that the demand be set aside for ‘some other reason’ under s 459J(1)(b) of the Act. Mr Evans invited the Court to conclude that it is open to consider and determine a validly commenced s 459G application by reference to a ground under s 459J(1)(b) of the Act, where the facts giving rise to that ground have only arisen during the pendency of the proceeding and could not have been the subject of the s 459G affidavit. He contended that in these circumstances, on the date when the application to set aside the demand was issued, 10 October 2017, Galaxy had an offsetting claim against the sum claimed in the demand. That claim arose as the result of an assessment lodged by CPG, which had been lodged on 18 October 2016, a year earlier, and had not been amended at all during that period. Mr Evans observed that it was not until 5 December 2017 during the pendency of the present proceeding that the Commissioner amended the assessment of CPG (and of Galaxy as CPG’s assignee), so as to deprive Galaxy of its argument that it was entitled to an offsetting claim.
Mr Evans foreshadowed that the following matters would be relevant considerations to justify the exercise of the discretion under s 459J(1)(b) to set aside the demand ‘for some other reason’ if an amendment of the application was permitted:
(a) the Commissioner’s unexplained delay in not issuing the amended assessment for over a year after the original assessment of entitlement to a GST credit on the part of CPG was raised, and doing so during the pendency of the proceeding implies a motive on the part of the Commissioner other than one of simply seeking to recover the debt owed to it by Galaxy. I did not understand Mr Evans to contend however that the actions of the Commissioner were unlawful;
(b) the existence of substantial merits to the Part IVC review application lodged by CPG is a matter which the Court should consider in favourably exercising the discretion to set aside the demand for ‘some other reason’. While it is not necessary to express a view about such a contention in the context of the consideration of the preliminary issue, it would run counter to the judgment of the High Court in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd;[3] and
(c) there is no evidence before the Court of an inability on the part of Galaxy to pay the demanded debt. Again, while it is not necessary to consider that contention at this juncture, it is somewhat doubtful that solvency is a relevant consideration in considering whether a statutory demand should be set aside.[4]
[3](2008) 237 CLR 473, [59]-[62]; see Assaf, above n 2, [5.43], [7.72]-[7.73].
[4]See discussion in Assaf, above n 2, [5.24]-[5.25].
The Court’s task at this point is to consider whether it has jurisdiction to allow an amendment of the originating process to enable Galaxy to agitate an argument that the demand should be set aside under s 459J(1)(b).
Legal Analysis
The Graywinter principle has been the subject of considerable judicial consideration and elaboration since it was first outlined by Sundberg J in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund.[5] While the application of the principle most often arises in applications involving an alleged genuine dispute or offsetting claim, the application (or mention) of the principle in the context of s 459J(1)(b) has been the subject of several authorities.
[5](1996) 70 FCR 452 at 459-60.
In Process Machinery Australia Pty Ltd v ACN 057 262 590 Pty Ltd (‘Process Machinery’),[6] Barrett J stated:[7]
The reasoning in Graywinter Properties with respect to disputed debt must mean that, in a case where it is sought to set aside the statutory demand on one of the other bases of objection provided for in the statute (that is, offsetting claim, a defect in the demand productive of substantial injustice requiring the demand to be set aside and “some other reason why the demand should be set aside”), the affidavit must at least disclose facts showing the substance of the allegations relevant to the ground in question. In a genuine dispute case, the affidavit would necessarily disclose facts showing the substance of the allegations relevant to that dispute. In a case in which it was sought to rely upon a defect productive of substantial injustice, the affidavit would disclose facts showing the substance of the allegations relevant to both defect in the demand and the injustice that would flow from the defect if the demand were allowed to stand. In a case asserting “some other reason why the demand should be set aside”, the affidavit would disclose facts showing the substance of the allegations relevant to that other reason
…
The real point is that the application and affidavit filed and served within the 21 day period must fairly alert the claimant to the nature of the case the company will seek to make in resisting the statutory demand. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by ss.459H and 459J. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period.
…
I return now to DCL’s contention that Mr Green’s affidavit may not properly be regarded as “an affidavit supporting the application”. For reasons already stated, I think that that objection may be regarded as well taken in relation to DCL’s attempt to rely on the two limbs of s. 459J. The absence from the affidavit of any indication of intended resort to the three matters which were advanced on the hearing by reference to that section seems to me to mean that the affidavit does not “support” an application in which it is sought to rely upon those matters.
[6][2002] NSWSC 45.
[7]Ibid [15], [22], [37].
In Elm Financial Services Pty Ltd v MacDougal (‘Elm Financial Services’),[8] Barrett J stated:
The Graywinter principle derives from the judgment of Sundberg J in Graywinter Properties Pty Ltd v Gas and Fuel Superannuation Fund (1996) 70 FCR 452 and may be regarded as now firmly established: see the most recent survey of the authorities in Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd [2004] NSWSC 527 (21 June 2004, White J). What it means is that the application for an order setting aside the statutory demand and the affidavit in support of that application, both filed and served within the 21 day period stipulated in s.459G(3), must fairly alert the claimant to the nature of the case the company will seek to make in seeking to have the statutory demand set aside. The content of the application and affidavit must convey, even if it be by necessary inference, a clear delineation of the area of controversy so that it is identifiable with one or more of the grounds made available by ss.459H and 459J for setting aside statutory demands. That process of delineation may not be extended after the end of the 21 day period, although it is open to the plaintiff to supplement the initial affidavit by way of additional evidence relevant to the area of controversy identified within the period.
[8][2004] NSWSC 560, [7].
It will be noticed that in both of those cases Barrett J made reference to both s 459H (which deals with genuine disputes and offsetting claims) and s 459J. In Process Machinery he did not allow the plaintiff to rely on the two limbs of s 459J by reason of the absence of the reference to such matters in the ’21 day affidavit’.
Elm Financial Services was a case concerned with the application of the Graywinter principle in the context of s 459H. The reference to s 459J(1)(b) was obiter as the plaintiff in that case sought to contend that there were genuine disputes and offsetting claims but clearly Barrett J again considered that the Graywinter principle extended to the need to ‘raise’ the matters giving rise to the exercise of the discretion under s 459J(1)(b).
In another decision of Barrett J, Saferack Pty Ltd v Marketing Heads Australia Pty Ltd,[9] his Honour assumed that in an application which sought to call on the discretion under s 459J(1)(b), the relevant factual matters relied upon were required to be raised in the ’21 day affidavit’. At paragraphs [25] and [26] his Honour stated:
With the benefit of the analysis by Austin J in POS Media and White J in Hansmar Investments, I am persuaded that my earlier approach is indeed too strict. In the Graywinter case itself, the minimum requirement with respect to a supporting affidavit was said by Sunberg J to be that it must “contain a statement of the material facts on which the applicant intends to rely to show a genuine dispute” [emphasis added]. That was, of course, a s 459H(1)(a) case. But the same reasoning applies where the challenge is under s 459J. In endorsing the approach taken by Sundberg J, the Full Court of the Supreme Court of Western Australia, in Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd [2001] WASCA 360, said that the supporting affidavit is “required to reveal a genuine dispute” [emphasis added]. These statements, coupled with the approaches taken by Austin J and White J and the decision of Santow J in Callite, persuade me that a ground is “raised”, as referred to in Energy Equity, if the ground is evident from the supporting affidavit, even if only because it can be discerned from some annexed document the content of which “reveals” it. (Emphasis added).
In the present case, the three grounds of objection advanced by reference to s 459J(1)(b) are evident on the face of the affidavit accompanying the statutory demand, being the affidavit a copy of which was annexed to the affidavit of Mr Hagan of 7 August 2007 which was in turn one of the affidavits supporting the s 459G application. This is because the grounds involve the absence of required content from the affidavit accompanying the statutory demand — a deficiency therefore obvious on the face of that affidavit. The grounds of objection are therefore available to be advanced by the plaintiff.
[9][2007] NSWSC 1143.
In Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (‘Britten-Norman’),[10] the Court of Appeal in New South Wales acknowledged Barrett J’s application of Graywinter in the context of an application brought pursuant to s 459J.
[10](2013) 85 NSWLR 601, [45].
In Re Australian Institute (Vic) & Tas (Pty Ltd),[11] Barrett AJA, sitting as an Acting Judge of Appeal, made reference to Britten-Norman and noted the Court of Appeal’s acceptance that the Graywinter principle applied to s 459J and stated:[12]
As the Court of Appeal noted in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 334; 85 NSWLR 601 at [34], there is a requirement that the supporting affidavit state the facts in support of the application. Nothing in the affidavit in this case referred to the fact of indebtedness at $590,000, or to any other fact giving rise to an inference that reliance would somehow be placed on the existence of that indebtedness in seeking to have the statutory demand set aside. I reject the submission of AIVT's counsel that reference in the affidavit to the making of the instalment application somehow carried within it a reference to every matter stated in an affidavit filed in support of the instalment order application.
The principle associated with Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822; 70 FCR 452 confines a s 459G applicant to grounds revealed by the supporting affidavit. The ground relied on must be evident from the affidavit, even if only from an annexure which reveals it. A mere reference to some other application having been made, albeit in proceedings between the same parties, does not reveal anything about the content of other documents filed in connection with the other proceedings. In the Britten-Norman case, the Court of Appeal accepted that these restrictions apply to a s 459J case as well as a s 459H case. The fact that a document filed in connection with the instalment order application referred to the $590,000 indebtedness, without in some way making the connection with the s 459G application, would be insufficient revelation of a ground of challenge of the kind that AIVT seeks to advance.
[11][2016] NSWSC 1143.
[12]Ibid [40]-[41].
In the case of Geitonia Pty Ltd (‘Geitonia’),[13] Black J considered the application of the Graywinter principle in the context of an application relying on s 459J(1)(b). The plaintiff had contended that the demand should be set aside because the affidavit accompanying the demand was sworn by the solicitor for the plaintiff who, it was contended, would not have had direct knowledge of the relevant debt. The affidavit filed in support of the application within the 21 day period had not referred to the form of the affidavit supporting the demand nor annexed that affidavit. The creditor submitted that the plaintiff did not sufficiently raise any objection as to the form of the affidavit to allow that point to be taken, relying on the Graywinter principle. Black J referred with approval to the application by Barrett AJA of the Graywinter principle in the context of s 459J which is extracted above and stated:[14]
It seems to me that, having regard to the fact–specific inquiry that is required by Graywinter and the cases which have applied it, it cannot be said that Mr Savell’s affidavit filed within the 21 day period required by s 459G of the Corporations Act raised directly, or by any necessary or reasonably available inference, any question as to the adequacy of the affidavit supporting the Demand. It does not seem to me that such a question could arise by inference where Mr Savell’s affidavit did not annex or refer to that affidavit. I do not accept Mr McDonald’s submission, in reply, that it was sufficient to raise that point, by an available inference, that Mr Savell’s affidavit had referred to the Demand which in turn had referred to the affidavit supporting it. The fact of a reference to the Demand did not raise any implication of an inadequacy in the affidavit supporting it. For that reason, it does not seem to me that it is open to Geitonia to rely on this matter as a basis to set aside the Demand.
[13][2016] NSWSC 1243.
[14]Ibid [15].
I consider that on an application of the above authorities in order to attract the jurisdiction of the Court to set aside the statutory demand under s 459J(1)(b) it is necessary to reveal that such an application is being made in the affidavit material filed within 21 days of service of the demand. This has not occurred in this case as Galaxy says that the matters giving rise to an application on that ground only arose after the 21 day period. That may well be so, but in my view the application of the Graywinter principle, which goes to the very jurisdiction of the Court in these matters, prevents the originating process being amended so as to allow such an application to be brought. Geitonia, which was referred to at the hearing of this matter, is but one of a line of authorities in support of this proposition, including those of intermediate courts of appeal.
As I have said, Galaxy has accepted it cannot contend that it has an offsetting claim available to it which would extinguish the DCT’s demand. For the above reasons, the Court is without jurisdiction to permit Galaxy to amend its application to enable it to argue that by reason of the circumstances the Court should exercise its discretion to set aside the demand under s 459J(1)(b). The application to amend should therefore be refused.
In the circumstances I will order that the application by Galaxy be dismissed with costs, including any reserved costs.
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