In the matter of Candlefox Group Pty Ltd
[2024] VSC 639
•21 October 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2024 01436
IN THE MATTER of CANDLEFOX GROUP PTY LTD (ACN 661 807 709)
BETWEEN:
| CANDLEFOX GROUP PTY LTD (ACN 661 807 709) | Plaintiff |
| v | |
| COMMISSIONER OF STATE REVENUE | Defendant |
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JUDGE: | Irving AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 August 2024 |
DATE OF JUDGMENT: | 21 October 2024 |
CASE MAY BE CITED AS: | In the matter of Candlefox Group Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 639 |
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CORPORATIONS — Application to set aside statutory demand under s 459G of the Corporations Act 2001 (Cth) — Whether the plaintiff had an off-setting claim against the debt as under s 459H of the Corporations Act 2001 (Cth) — Application to set aside statutory demand dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Annabell of counsel | Harwood Andrews, Sladen Legal and Adley Burstyner |
| For the Defendant | Ms A Curruthers of counsel | State Revenue Office |
TABLE OF CONTENTS
Introduction................................................................................................................................... 1
Material relied upon..................................................................................................................... 1
Mr Hudson’s affidavit in support of the plaintiff’s application............................................. 2
Mr Ross’ evidence in support of the plaintiff’s application.................................................... 4
Mr Kalsi’s evidence for the defendant....................................................................................... 4
Statutory provisions and principles........................................................................................... 8
The plaintiff’s submissions........................................................................................................ 13
The defendant’s submissions.................................................................................................... 15
Consideration.............................................................................................................................. 17
Conclusion.................................................................................................................................... 23
HIS HONOUR:
Introduction
Candlefox Group Pty Ltd (plaintiff) has applied to the Court under s 459G of the Corporations Act 2001 (Cth) (Act) to set aside a statutory demand dated 5 March 2024 served on it by the Commissioner of State Revenue (defendant). The creditor’s statutory demand was based on a debt of $83,487.08 being unpaid payroll tax, penalty interest and interest due under the Payroll Tax Act 2007 (Vic) and the Taxation Administration Act 1997 (Vic) (TAA).
The plaintiff’s ground in seeking the order was that the plaintiff has an off-setting claim against the debt.[1] The plaintiff’s alleged offsetting claim was that it had mistakenly paid the sum of $63,377.79 for a related entity’s payroll tax liabilities, for which it sought restitution.
[1]The plaintiff’s originating motion raised the additional grounds of (1) a genuine dispute about the existence of the debt; and (2) that the statutory demand and supporting affidavit contain defects causing the plaintiff substantial injustice. These additional grounds were abandoned by the plaintiff’s counsel at the hearing.
The plaintiff’s application was opposed by the defendant.
For the reasons that follow I have decided to dismiss the plaintiff’s application.
Material relied upon
The hearing proceeded on the basis of affidavits filed by the parties. Neither party sought to cross-examine the deponent of any affidavit.
The plaintiff relied upon:
(a) the affidavit of Matthew John Hudson, director of the plaintiff, sworn 25 March2024;
(b) the affidavit of David Anthony Ross, sworn 19 June 2024; and
(c) written submissions filed 1 July 2024 and 29 July 2024.
The defendant relied upon:
(a) the affidavit of Rahul Kalsi sworn 20 May 2024; and
(b) written submissions filed 22 July 2024.
Mr Hudson’s affidavit in support of the plaintiff’s application
Mr Hudson is a director of the plaintiff company, which conducts a full-service education marketing agency. Mr Hudson deposed:
(a) on 20 July 2022, a subsidiary of the plaintiff, Now Hiring Pty Ltd (Now Hiring), appointed an external administrator and remained in administration until 7 January 2024;
(b) on 2 September 2022, Now Hiring entered into a Deed of Company Arrangement (DOCA) with the plaintiff and other companies;
(c) on 22 September 2023 the plaintiff’s CFO, Mr James Kleine, paid the payroll tax of Now Hiring to the defendant in the total amount of $63,377.79, comprised of:
(i) $29,215.81 for July 2022;
(ii) $23,469.53 for August 2022; and
(iii) $10,692.45 for September 2022.
(d) Mr Hudson believed these payments to the defendant were made in error as the debt of $63,377.79 incurred by Now Hiring was incurred during the administration period and was therefore payable by the administrator;
(e) Mr Hudson discovered the payment error in October 2023 and instructed Mr Kleine to request the defendant repay the money;
(f) in October 2023 Mr Kleine made a request through the defendant’s secure messaging portal that the sum of $63,377.79 be repaid;
(g) Mr Kleine informed Mr Hudson that the defendant did not respond to this request;
(h) in January 2024 Mr Kleine made a second request through the defendant’s secure messaging portal for a refund from the defendant;
(i) Mr Kleine informed Mr Hudson that the defendant did not respond to his second request and that there is no ‘read receipt’ or email confirmation provided when making requests through the defendant’s secure messaging portal;
(j) the plaintiff’s payroll tax within the annual reconciliation for the 2022-2023 financial year was $164,685.48;
(k) on 2 November 2023 Mr Kleine paid the amount of $125,839.94 to the defendant;
(l) the reduced payment was made due to the earlier payment in error of $63,377.79 which the defendant had not refunded;
(m) Mr Hudson now believes the reduced payment should have been in the sum of $101,307.69;
(n) in light of the plaintiff’s payments to the defendant, the defendant has been overpaid $24,532.25;
(o) after receiving the statutory demand, Mr Hudson instructed the plaintiff’s solicitors, who on 22 March 2024 wrote to the defendant demanding it be withdrawn; and
(p) on 22 March 2024 the plaintiff’s solicitors received an email from the defendant, indicating the defendant intended to respond by 3 April 2024.
Mr Hudson deposed that based on this evidence the plaintiff will seek to set off the alleged debt against the amounts paid to the SRO by mistake, and contend no penalty amount is payable; and in the alternative, the plaintiff has a cross-claim in restitution against the defendant in the amount of $63,377.79 plus interest and costs.
Mr Ross’ evidence in support of the plaintiff’s application
Mr Ross was the external administrator appointed by Now Hiring from 20 July 2022 to 7 January 2024. Mr Ross deposed:
(a) on 2 September 2022 Now Hiring entered into a DOCA with the plaintiff and other companies and Mr Ross was appointed deed administrator;
(b) the gross wages paid during the administration period (excluding the DOCA period) for the employees of Now Hiring were $556,245.56;
(c) based on that gross wage figure, Mr Ross estimates the payroll tax due and payable by Now Hiring to the defendant was $26,977.91;
(d) the amount of $26,977.91 was not paid by Now Hiring during the administration period and is therefore a debt owed by Now Hiring to the defendant;
(e) Now Hiring is willing and able to pay the debt of $26,977.91 to the defendant.
Mr Kalsi’s evidence for the defendant
Mr Kalsi is a Team Leader employed by the defendant in the Debt Management Branch, Corporate Services Division of the State Revenue Office in Victoria. He reviewed the books and records held by the defendant relating to the plaintiff. Mr Kalsi deposed:
(a) a current and historical company search for Now Hiring shows that Now Hiring is not a subsidiary of the plaintiff, rather:
(iv) Now Hiring and the plaintiff have a mutual director and secretary;
(v) the ultimate holding company is Candlefox Holdings Pty Ltd (CHPL); and
(vi) CHPL holds all 3,431,897 shares in Now Holding with a paid up value of $1,133,571.07;
(b) the defendant’s records confirm that the plaintiff is not part of a payroll tax group with Now Hiring and that the payroll liabilities for the plaintiff and Now Hiring have always been separate;
(c) the plaintiff’s payroll tax reconciliation statements indicate that the plaintiff is and was a “Non Group Employer” as distinct from Now Hiring which is a “Designated Group Employer”;
(d) Mr Hudson’s assertion that the plaintiff’s payment of $63,377.79 to the defendant for Now Hiring’s tax assessment was made in error because ‘the debt of $63,377.79 incurred by Now Hiring Pty Ltd was incurred during the administration period and therefore, any amounts owed to the Defendant by Now Hiring Pty Ltd were to be paid by the [Deed] administrator’, is incorrect because:
(i) the company search for Now Hiring shows that Now Hiring was in voluntary administration from 20 July 2022 to 2 September 2022, and then under a DOCA until 8 December 2023;
(ii) the monthly returns relating to the $63,377.79 relate to 1 July 2022 to 30 September 2022, only a portion of which fell within the DOCA period;
(iii) clause 3.2(e)(ii) of the DOCA expressly provides that during the deed period, the companies (as defined, and including Now Hiring) and the plaintiff will ‘pay all of their debts incurred after the Appointment Date [defined as 18 July 2022 for Now Hiring] as and when they fall due’;
(iv) clause 4.2 of the DOCA provides that ‘The Companies’ (which includes various entities including Now Hiring and CHPL, but not the plaintiff) jointly and severally ‘must reimburse the Administrators and the Deed Administrator in respect of all costs, fees and expenses incurred since the Appointment Date as Administrators and in connection with the performance of their rights, obligations and responsibilities under this Deed, as Deed Administrator.’
(e) on the information available to the defendant in relation to the indebtedness of the plaintiff to the defendant, Mr Kalsi has not identified any basis to believe that the $63,377.79 remitted to the defendant was not due and payable;
(f) information for taxpayers who wish to request a refund is on the defendant’s website. When a taxpayer wishes to request a refund they are required to make an application via ‘PTX Express’ or by completing the specified form. Such an application would have had to have been made by Now Hiring being the entity to whose account the payment was applied and not just from the plaintiff, being the entity making or funding the payment;
(g) the defendant’s records do not disclose receipt of any formal request for a refund under the plaintiff’s customer identification number in relation to the $63,377.79;
(h) in order to agree to a refund the defendant would have to form the view that the refund was due and payable and such a refund would not be due and payable until the defendant made that decision and would be paid to Now Hiring as the entity to which those funds had been applied;
(i) accordingly, the defendant disputes the plaintiff has an offsetting claim in relation to the statutory demand;
(j) as at 10 October 2023 the plaintiff’s liability to the defendant was $164,685.48, the amount indicated in the 2022-2023 annual reconciliation referred to by Mr Hudson;
(k) the due date for the plaintiff to complete it submission and lodgement of the reconciliation was 21 July 2023 but the plaintiff submitted the reconciliation on 10 October 2023, 81 days late;
(l) due to the plaintiff’s late submission the defendant applied penalty tax of $41,171.37 (pursuant to ss 29 and 34 of the TAA) and interest of $1,634.36 (pursuant to ss 24 and 25 of the TAA);
(m) on 6 November 2023 the defendant issued the plaintiff with a reassessment notice reflecting the plaintiff’s payment of $125,839.94, referred to by Mr Hudson;
(n) as a result of the plaintiff’s ongoing default in paying the amounts assessed and due, further interest and penalty tax became payable;
(o) the statutory demand for $83,487.08 comprised:
(i) $81,651.27 being the amount payable under the 6 November 2023 Notice of Reassessment;
(ii) $121.37 being the amount payable under the 5 December 2023 Notice of Assessment;
(iii) $932.06 being the amount payable under the 8 January 2024 Notice of Assessment; and
(iv) $782.38 being the amount under the 22 January 2024 Notice of Assessment.
(p) the outstanding debt remains due and payable; and
(q) the plaintiff has not lodged any objection to the assessments in respect of any allegedly incorrect penalty tax.
Statutory provisions and principles
Section 459G and 459H of the Act provide:
459G Company may apply
(1)A company may apply to the Court for an order setting aside a statutory demand served on the company.
(2)An application may only be made within the statutory period after the demand is so served.
(3)An application is made in accordance with this section only if, within that period:
(a)an affidavit supporting the application is filed with the Court; and
(b)a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.
459HDetermination of application where there is a dispute or offsetting claim
(1)This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b) that the company has an offsetting claim.
(2)The Court must calculate the substantiated amount of the demand in accordance with the formula:
Admitted total – Offsetting total
where:
admitted total means:
(a) the admitted amount of the debt; or
(b) the total of the respective admitted amounts of the debts;
as the case requires, to which the demand relates.
offsetting total means:
(a)if the Court is satisfied that the company has only one offsetting claim—the amount of that claim; or
(b)if the Court is satisfied that the company has 2 or more offsetting claims—the total of the amounts of those claims; or
(c) otherwise—a nil amount.
(3)If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4)If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a) varying the demand as specified in the order; and
(b)declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
(5) In this section:
admitted amount, in relation to a debt, means:
(a)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt—a nil amount; or
(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt—so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c) otherwise—the amount of the debt.
offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
respondent means the person who served the demand on the company.
(6) This section has effect subject to section 459J.
In Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) (Malec),[2] the Victorian Court of Appeal summarised the principles applicable in assessing whether an applicant had established a genuine dispute or offsetting claim under s 459H of the Act:
[2][2015] VSCA 330, [47]-[51] (Kyrou, Ferguson and Kaye JJA).
The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.
In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim. It is therefore not helpful to perceive that one party is more likely than the other to succeed or that the eventual state of the account between the parties is more likely to be one result than another. Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.
The court is required to determine whether the dispute or offsetting claim is ‘genuine’. It has been said that the criterion of a ‘genuine’ dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.
The court is not required to accept uncritically every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied upon by the applicant to set aside a statutory demand.
Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd involved a demand for payment of a debt alleged to be due under a contract for the supply of goods. The applicant relied on four matters, each of which had the potential to affect the respondent’s entitlement to be paid the entire amount of the debt. Barrett J held that all four matters were sufficiently plausible to raise a genuine dispute. He relevantly stated:
The [applicant] will fail in [the] task [of establishing a genuine dispute] only if…the contentions upon which it seeks to rely…are so devoid of substance that no further investigation is warranted. Once the [applicant] shows even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the [applicant], it must find that a genuine dispute exists, even where any case apparently available to be advanced against the [applicant] seems stronger.
[citations omitted].
In Ligon 158 Pty Ltd v Huber (Ligon),[3] Barrett AJA described the role of the Court as follows:
The issue for the court is not whether the company would succeed on those grounds in defending a debt recovery action brought against it by the person who served the statutory demand. Rather, the court must decide whether the grounds of dispute delineated by the affidavit are grounds which, when viewed in the whole of the circumstances emerging from the evidence, indicate a plausible defence propounded in good faith and not one merely constructed in response to the pressure represented by the statutory demand. Issues of credibility will generally be confined to the question whether the asserted grounds are of that quality, as distinct from questions going to the ultimate merits of the postulated defence itself.
[3](2016) 117 ACSR 495, 499 [10] (Barret AJA with McColl and Meagher JJA agreeing).
Barrett J considered the Court’s role in considering an application under s 459G in Yoogalu Pty Ltd v Intentia Australia Pty Ltd:[4]
Its sole function is to determine whether or not the state of account between the parties is (as to the particular matters referred to in s.459H(1)) so clear-cut and uncontroversial that non-payment of the sum demanded by the defendant should, entirely of itself and without further inquiry, mean that the plaintiff must, in a subsequent winding up proceeding, be regarded as insolvent unless it can itself affirmatively prove its solvency.
[4][2006] NSWSC 278, [32].
In Wellnora Pty Ltd v Fiorentino,[5] Barrett J considered the extent to which purely legal questions should be decided on a s 459G application:
In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, McLelland CJ in Eq said (at 787) that the court must not accept uncritically as giving rise to a genuine dispute ”a patently feeble legal argument”. His Honour was here indicating that if the basis for the alleged dispute is a ”legal argument”, the court should decide whether the argument is “patently feeble” – and, if it is, recognise that it is not in truth productive of genuine dispute. In such a case, the dispute said to arise from the “patently feeble legal argument” would be seen not to be a genuine dispute.
Where the basis for the alleged dispute is a legal argument or question of construction which is not ”patently feeble” and does not involve a “short point of law” and there are clearly arguable alternatives as to the correct outcome, the court should not, upon the s 459G application, attempt to reach a definitive resolution. The reasons are stated in the joint judgment of Brooking JA and Charles JA in Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; (2001) 19 ACLC 1270 at [4]:
We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.
[5][2008] NSWSC 483, [49]-[50].
In Sceam Constructions Pty Ltd v Clyne,[6] the Victorian Court of Appeal considered the requirements of an affidavit supporting an application under s 459G of the Act:
[6][2021] VSCA 270, [38]-[39], [43].
…the legislation… requires an affidavit supporting the application to be filed with the Court within the statutory period. In the context of a claim to set aside the statutory demand on the basis that there is a genuine dispute as to the existence or amount of the demand, pursuant to s 459H(1)(a), the affidavit must support the application by providing the basis for establishing that there is a genuine dispute. Establishing the genuineness of the dispute requires material showing, or from which it can be inferred, that there is a real dispute. Most commonly this will be done by the deponent describing the dispute. That description will delineate the scope of the dispute which may be relied upon to set the demand aside. Where the dispute is based purely on the construction of a written agreement between the parties, the support requirement may be satisfied by exhibiting the agreement without more. But, for example and without being prescriptive, if something beyond the written terms is to be relied upon, then it is highly likely that this will need to be raised in the affidavit and more than mere assertion will be necessary. Ultimately, what is required to satisfy the support requirement must be assessed in the context of the particular application that is made.
In our opinion, while various forms of language are used in the authorities, their effect is the same. Whether the terms ‘fair notice’ or ‘fairly alert’ are used or whether it is said that the ground must be raised ‘expressly, by necessary inference or by a reasonably available inference’, the outcome turns on whether the affidavit supports the application. In their context, we do not understand the Victorian authorities referred to above to have used the terms ‘fair notice’ and ‘fairly alert’ in a procedural fairness sense. Rather, in substance and properly understood, those phrases have been used as a shorthand for the lengthier phrase ‘expressly, by necessary inference or reasonably available inference’.
…
…It is clear from the authorities that an affidavit filed within time that does not identify the dispute later sought to be relied upon is not a ‘supporting affidavit’ in so far as the different genuine dispute is concerned, and that the party concerned is not permitted to rely on that different genuine dispute if it was not identified in the supporting affidavit filed within the statutory time period. That is, the particular ‘genuine dispute’ on which an applicant seeks to rely must be identified in the supporting affidavit filed within time; it is not sufficient to identify one genuine dispute in the supporting affidavit, and then to identify a different genuine dispute in later affidavits filed out of time and at the hearing of the application.
While the Court of Appeal’s comments were made in reference to a supporting affidavit filed in a ‘genuine dispute’ case, their observations are equally applicable to an ‘offsetting claim’ case.[7]
[7]Malec (n 2) [55].
The plaintiff’s submissions
The plaintiff submitted that it is well recognised that a payer who has made a payment on the basis of a mistake has a claim in restitution for the mistaken payment.[8] On the facts of this case, each of the elements of a claim for restitution was satisfied:
[8]David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 375-376 (Mason CJ, Deane, Toohey, Gaudron and McHugh JJ) and 393 (Brennan J) (‘David Securities’).
(a) in September 2023, the plaintiff paid the sum of $63,377.79 to the defendant – ie the defendant received an enrichment at the expense of the plaintiff;
(b) at the time that the plaintiff made the payment, it was acting under a mistake of fact or law, as the payments were in fact required to be paid by Now Hiring’s administrator; and
(c) the fact that the defendant may not have been aware of the mistake at the time is immaterial, as the cause of action does not depend upon the recipient’s knowledge of the mistake.
The plaintiff addressed five issues apparently raised by the defendant’s evidence:
(a) Candlefox and Now Hiring are not subsidiaries: The plaintiff and Now Hiring are related companies and the plaintiff’s claim in restitution does not depend upon a subsidiary relationship between those companies.
(b) Candlefox and Now Hiring are not part of a payroll tax group: Again, this is immaterial to the plaintiff’s claim in restitution but conversely means that the defendant cannot raise a defence of good consideration, ie that the plaintiff’s mistaken payment can be applied by the defendant to discharge a liability owed by the plaintiff to the defendant.
(c) The amounts of tax payable during administration: The defendant’s contention that only part of the time period covered by the monthly returns was covered by the deed period assumes a distinction between when the liabilities were accrued as opposed to due which, even if accepted by the Court, would only be relevant to calculating the amount of the plaintiff’s claim against the defendant.
(d) Reference to reimbursement rights in the DOCA: The defendant’s reference to Now Hiring’s administrator’s rights within the DOCA to seek reimbursement from companies within the Candlefox group does not assist the defendant. The defendant accepts that the plaintiff has no obligation to reimburse the administrator in respect of any such liabilities.
(e) Assertions regarding the defendant’s refund policy: The defendant does not deny that the plaintiff made requests for refunds but rather asserts that the plaintiff made no formal requests. The defendant’s policies regarding requests for refunds are irrelevant because they do not affect the legal character of the plaintiff’s mistaken payments.
The plaintiff submitted that because it raised the dispute about the mistaken payment with the defendant, via the defendant’s secure messaging portal, well before the defendant issued the statutory demand, it could not be suggested that the dispute was ‘merely constructed in response to the pressure represented by the statutory demand’.[9]
[9]Ligon (n 3) 499, [10] (Barret AJA with McColl and Meagher JJA agreeing).
The defendant’s submissions
The defendant submitted the plaintiff does not have a competent cause of action giving rise to an offsetting claim against the defendant because:
(a) the plaintiff deliberately and voluntarily made the payments for Now Hiring based on a notice of assessment;
(b) the defendant has not been unjustly enriched because the debt was payable and further debts remain outstanding; and
(c) at its highest the plaintiff may have a claim against Now Hiring or the former administrator and deed administrator, Mr Ross, for reimbursement.
The defendant submitted that s 459H(1)(b) requires the plaintiff particularise a precise amount to be offset. The plaintiff has not provided material to indicate the calculation or method of calculation of the offsetting claim as required. Conversely, the defendant submitted:
(a) only a portion of the $63,377.79 related to the windows of time covered by the administration or deed administration of Now Hiring;
(b) under the terms of the DOCA the plaintiff and related entities were obliged to remit payment and/or indemnify the administrator and deed administrator;
(c) the defendant has set out the precise quantification and assessments which comprise the debt in the statutory demand; and
(d) the defendant has set out the further amounts that are now payable by the plaintiff, pursuant to further assessments.
The plaintiff’s proposition that ‘payroll tax was required to be paid by Now Hiring’s administrator during the administration period’ ignores the express provisions of the DOCA. Those provisions provide that:
(a) the plaintiff and other related entities covenanted to ‘pay all of their debts incurred after the Appointment Date [defined as 18 July 2022 for Now hiring] as and when they fall due’;[10] and
(b) the administrator and DOCA administrator were to be reimbursed by various entities related to the plaintiff ‘in respect of all costs, fees and expenses incurred since the Appointment Date as Administrators and…as Deed Administrator.[11]
[10]Clause 3.2(e)(ii) of the DOCA.
[11]Clause 4.2 of the DOCA.
Mr Hudson’s assertion that the plaintiff made payment of $125,849.94 to the defendant on 2 November 2023 and of all other relevant payroll tax is unsupported by any contemporaneous or financial evidence revealing payment by the plaintiff.
The defendant denied the plaintiff had made requests for a refund and submitted that in the absence of direct evidence or contemporaneous records, the Court could not be satisfied that the plaintiff’s alleged offsetting claim was not of recent invention.
The defendant submitted the plaintiff’s argument is not that it mistakenly thought it was paying its own debt, but rather that it deliberately paid Now Hiring’s debt, and subsequently formed the view that perhaps the administrator was liable for that payment. The defendant submitted the terms of the DOCA make clear that the administrator was not liable for the payment. These circumstances do not give rise to an entitlement for a refund under the TAA, nor constitute the defendant being unjustly enriched. The defendant received payment of a tax liability from a party who chose to make that payment. Mr Hudson’s affidavit failed to identify any legitimate basis on which the plaintiff would be entitled to a refund from the defendant in circumstances where the plaintiff chose to pay another taxpayer’s liability which was due and owing.
The defendant submitted that the plaintiff had not established why it would have a cause of action against the defendant in relation to the amounts paid on behalf of Now Hiring, rather than against Now Hiring, the administrator or other related entities who were obligated by the terms of the DOCA to meet liabilities during the external administration period.
The defendant pointed out that the plaintiff had not tendered any evidence from the director of Now Hiring, Mr Van Der Sluys, despite Mr Van Der Sluys also being a director of the plaintiff. Nor had the plaintiff provided any evidence pertaining to the plaintiff’s obligations to financially assist Now Hiring other than its express obligations under the DOCA and the incorrect statement of Mr Hudson that Now Hiring is a subsidiary of the plaintiff.
In relation to Mr Ross’ evidence, the defendant stated that Mr Ross’ definition of the administration period differed from the dates in the company search exhibited to the affidavit of Mr Hudson. Further, while Mr Ross provided an estimate of $26,977.91 for the payroll tax due for what he said was the administration period, he did not provide any explanation or supporting material in relation to his calculations nor exhibit any actual payroll tax assessments. While Mr Ross confirmed that Now Hiring did not pay Mr Ross’ estimate of the payroll tax liability, he gave no explanation why not, nor whether statutory lodgements were made, nor what, if any, notices of assessments were made regarding Now Hiring’s liability to the defendant over the administration period.
The defendant also criticised Mr Ross’ evidence that Now Hiring is willing and able to pay the debt of $26,977.91 to the [Commissioner] because Mr Ross had not sought to explain the discrepancy between his estimate and the amount due as assessed by the defendant. Nor had Mr Ross explained the basis for his belief that Now Hiring had the capacity to pay that amount in circumstances where he ceased being the external administrator of Now Hiring over seven months earlier.
Consideration
The plaintiff’s proposed offsetting claim is for restitution on the basis of mistaken payment. The plaintiff’s evidence of the alleged mistake is limited to the statements of Mr Hudson that:
On or about 22 September 2023, the Plaintiff’s CFO, Mr James Kleine, paid the payroll tax of Now Hiring Pty Ltd to the Defendant in the total amount of $63,377.79 comprised of the following:
(a) $29,215.81 for July 2023;
(b) $23,469.53 for August 2023; and
(c) $10,692.45 for September 2023.
A copy of the payroll tax returns are exhibited at pages 77 to 79 of MJH-1.
The above amounts were paid by the Plaintiff to the SRO. A copy of the bank statements evidencing these payments is exhibited at pages 80 to 81 of MJH-1.
I believe that the payment in the sum of $63,377.79 to the Defendant was made in error (payment error) as the debt of $63,377.79 incurred by Now Hiring Pty Ltd was incurred during the administration period and therefore, any amounts owed to the Defendant by Now Hiring Pty Ltd were to be paid by the administrator.
In or about October 2023 the payment error was discovered and I instructed Mr Kleine to request the money back from the Defendant.
In David Securities,[12] the majority of the High Court set out the requirements of an action for restitution in mistake:
[12]David Securities (n 8), 378-379 (per Mason CJ, Deane, Toohey, Gaudron & McHugh JJ).
So, the payer will be entitled prima facie to recover moneys paid under a mistake if it appears that the moneys were paid by the payer in the mistaken belief that he or she was under a legal obligation to pay the moneys or that the payee was legally entitled to payment of the moneys. Such a mistake would be causative of the payment.
….
Accordingly, it is not legitimate to determine whether an enrichment is unjust by reference to some subjective evaluation of what is fair or unconscionable. Instead, recovery depends upon the existence of a qualifying or vitiating factor such as mistake, duress or illegality.
…
As La Forest J. stated in Air Canada v British Columbia, the two species of mistake (ie, fact and law) should be “considered as factors which can make an enrichment at the plaintiff’s expense ‘unjust’ or ‘unjustified’”.
The respondent’s submission that the appellants must independently prove “unjustness” over and above the mistake cannot therefore be sustained. The fact that the payment has been caused by a mistake is sufficient to give rise to a prima facie obligation on the part of the respondent to make restitution. Before that prima facie liability is displaced, the respondent must point to circumstances which the law recognises would make an order for restitution unjust. There can be no restitution in such circumstances because the law will not provide for recovery except when the enrichment is unjust. It follows that the recipient of a payment, which is sought to be recovered on the ground of unjust enrichment, is entitled to raise by way of answer any matter or circumstance which shows that his or her receipt (or retention) of the payment is not unjust.
[citations omitted].
An applicant for orders setting aside a statutory demand on the basis of an offsetting claim is not required to formally or comprehensively evidence the basis of its off-setting claim. It is however required to establish a plausible contention requiring investigation. The proposed offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. The Court is not required to accept an assertion of facts unsupported by evidence.
I am not satisfied that the plaintiff has met that burden in this case. As David Securities makes clear, the relevant inquiry is whether it appears that the money were paid by the plaintiff in the mistaken belief that it was under a legal obligation to pay the money. There is simply no evidence before the Court about the basis upon which Mr Kleine made the payment to the defendant. Rather the evidence is that Mr Hudson, at a later date, formed the view that the plaintiff’s payment was a mistake because the administrator should have paid Now Hiring’s tax liability. Mr Hudson is silent about why Mr Kleine made the payment and his statement that the administrator should have made the payment does not assist in illuminating the plaintiff’s motivation in making the payment. It does not answer this shortcoming to say that if the offsetting claim were to go to trial, further evidence would be obtained as to Mr Kleine’s state of mind at the time he made the payments. In my view, without more, Mr Hudson’s evidence does not give rise to a necessary or reasonably available inference that the plaintiff paid the money because of the mistaken belief that it was under a legal obligation to do so. Rather, the Court is left in a state of pure speculation about why the plaintiff made the payment. This is not a matter in which the evidence gives rise to contested facts which should be allowed to go to trial. In my view there is simply no evidence as to the basis upon which the plaintiff made the payments. Without some evidence on that issue the Court cannot be satisfied the plaintiff has demonstrated an arguable basis for an offsetting claim for restitution on the basis of a mistake.
The plaintiff’s counsel sought to rely on the case of Larner v London County Council (Larner)[13] as authority for the proposition that restitution is available even when the payer was not under an obligation to make the payment. In Larner the London County Council had sought to recover voluntary payments made to employees who, during the war, entered the armed services. The payments were made subject to a condition that the employees were required to inform the Council immediately of any change in the amount of their war service pay. Larner, on appeal argued that because the payment was voluntarily made by the Council and not in the discharge of a legal liability, it could not be recovered. Denning LJ found that the Council, ‘by their resolution, for good reasons of national policy, made a promise to the men which they were honour bound to fulfil. The payments made under that promise were not mere gratuities. They were made as a matter of duty.’ I do not accept that Larner supports the proposition that restitution has been ordered in some cases notwithstanding there was no mistake as to obligation. In Larner, it was explicitly found that the Council was under a duty to make the payments. In the plaintiff’s case before this Court there is no evidence of the basis upon which the payments were made.
[13][1949] 2 KB 683.
During the course of the hearing, counsel for the plaintiff suggested that the evidence contained in the plaintiff’s bank statements showed that the plaintiff made a number of other payroll tax payments on the same date. Counsel suggested that if the offsetting claim proceeded to trial, the plaintiff would argue that this supports a likelihood that ‘this was made by mistake as one of a number of payroll tax payments, but of course we don’t put that too highly’. This appeared to be the first time the plaintiff raised a possible processing type error as the basis of the mistaken payment. Counsel did not develop this point. I understood counsel to be submitting that at trial, the plaintiff might argue that the nature of the mistake was that the plaintiff mistakenly thought it was paying its own tax liability because the payments in relation to Now Hiring’s liability were made at the same time the plaintiff made payments in respect of its own liability. This submission appeared somewhat at odds with Mr Hudson’s evidence, which was that after the payments were made he formed the belief that the administrator was liable to make payment of Now Hiring’s tax liabilities. Mr Hudson made no mention of the payments having been made on the misunderstanding that the plaintiff was paying its own tax liability. In the absence of evidence of the actual basis upon which the plaintiff made the payment it is not possible to see any factor that, on rational grounds, indicates an arguable case on the part of the plaintiff.
Given my finding that the plaintiff has not established to the relevant standard that it has an offsetting claim available to it, it is strictly unnecessary to determine whether the plaintiff made requests for a refund via the defendant’s secure messaging portal and, if so, whether these indicate its proposed offsetting claim is not of recent invention in response to the receipt of the statutory demand. The plaintiff’s evidence on this issue was limited to that of Mr Hudson. The Court did not have the benefit of any evidence of Mr Kleine, who was said to be the person who made the refund requests. The defendant, however, did not seek to cross-examine Mr Hudson. Mr Kalsi’s evidence, that the defendant’s records do not show it received a ‘formal request for a refund…under Candlefox’s Customer ID…in relation to the $63,377.79’, is not inconsistent with the Mr Kleine’s request having been made via the defendant’s secure messaging portal. While the plaintiff’s evidence of its requests for refunds is weak, it was not, in my view, displaced by the defendant’s evidence. Accordingly, I am not satisfied that the plaintiff’s claim was invented in response to the pressure represented by the statutory demand.
Counsel for the plaintiff sought to argue that the plaintiff’s refund requests, being made shortly after the payments were made, supports the likelihood the company ‘was under a misapprehension’ when the payments were made. Exactly what misapprehension could be inferred from this evidence was not specified. In my view, it is not possible for this evidence to lend support to the alleged mistake given the absence of evidence about the nature of Mr Kleine’s mistaken belief at the time he made the relevant payments.
Given my finding that the plaintiff has not demonstrated that it has an offsetting claim, it is also unnecessary to consider the defendant’s argument that any application for a refund by the plaintiff must be made in accordance with Part 4 of the TAA.
If I am incorrect and the plaintiff has established the basis of an offsetting claim, it would be necessary to calculate the substantiated amount of the demand in accordance with s 459H(2) of the Act.
At the hearing, counsel for the plaintiff argued that the plaintiff was entitled to the amount paid by mistake being $63,377.79, interest and a claim for loss of use of the funds. Counsel relied on the case of Sempre Metals Ltd v Inland Revenue Commissioners[14] as authority that it was available to the Court to order compound interest on the plaintiff’s claim rather than simple interest. Counsel conceded that a claim for compound interest was highly contested among restitution scholars and that he was not in a position to provide a specific calculation of the plaintiff’s total claims. Counsel submitted the Court should be satisfied that the quantum of the plaintiff’s claim was commensurate with the amount of the statutory demand and may exceed it. In the alternative, counsel submitted that the Court could amend the amount sought in the statutory demand if it was not satisfied the plaintiff’s offsetting claim exceeded it. The plaintiff did not provide any further quantification of its loss of use or interest claims.
[14][2007] UKHL 34.
I agree with the defendant’s counsel that the plaintiff’s late claim for loss of use is not supported by Mr Hudson’s affidavit. Nor, in my view is the claim for compound interest, given the basis for a claim for compound interest was not specified. The plaintiff’s submissions in relation to these aspects of its claim rose no higher than that they were claims that could theoretically be made. Counsel for the plaintiff advanced no substantive basis for either. In any event, counsel offered no quantification of these claims such as would allow the Court to include them in the calculation of the substantive amount of the demand.
Had it been necessary, I would have been inclined to accept the plaintiff’s counsel’s submission that the whole of the plaintiff’s claim of $63,377.79 should considered in the calculation of the substantiated amount of the demand. I am of that view because on the evidence before the Court on this application the plaintiff paid that amount to the credit of Now Hiring. It appears to me that any dispute about quantum based on questions about Now Hiring’s accrued or actual payroll tax liability during the exact period of the administration and deed administration are issues that, had I been satisfied the plaintiff demonstrated an offsetting claim, would be more appropriately determined at trial.
Conclusion
For the reasons given above I am not satisfied that the plaintiff has demonstrated the availability of an offsetting claim. Accordingly, I will dismiss the plaintiff’s application to set aside the statutory demand issued by the defendant dated 5 March 2024.
My preliminary view, subject to any submissions the parties may wish to make, is that costs should follow the event so that the plaintiff should pay the defendant’s costs of this proceeding. I request that the parties confer on the issue of the costs of the proceeding. If the parties are unable to reach agreement on costs within fourteen days of the date of this judgment, I will relist the proceeding for oral argument on costs.
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