SC Tours Pty. Limited and Ors. v Singer

[1999] NSWSC 971

CITATION:	SC Tours Pty. Limited & Ors. v. Singer & Ors. [1999] NSWSC 971
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	No. 3258 of 1999
HEARING DATE(S):	27th August 1999
JUDGMENT DATE:	27 September 1999
PARTIES :	SC Tours Pty. Limited (1st Plaintiff) George Burton Sampson (2nd Plaintiff) Glenda Faye Sampson (3rd Plaintiff) Leslie Singer (1st Defendant) Keiko Adachi (2nd Defendant) Sector Australia Pty. Limited (3rd Defendant) Australian Panoramic Coach Pty. Limited (4th Defendant)
JUDGMENT OF:	Hodgson CJinEq at 1

COUNSEL :	Mr. M. Tobias QC with Ms. A.E. Collins for Plaintiffs Mr. S. Motbey for Defendants
SOLICITORS:	Hill Thomson & Sullivan, Sydney for Plaintiffs Jenkins & Associates, Bondi Junction for Defendants
CATCHWORDS:	CONTRACT - SALE OF SHARES AT VALUATION - JOINT LETTERS TO VALUER - CONSTRUCTION; EQUITY - MISREPRESENTATION - SPECIFIC PERFORMANCE; TAXES AND DUTIES - PAYROLL TAX - WHETHER LIABILITY ACTUAL OR CONTINGENT
ACTS CITED:	Payroll Tax Act 1971 (NSW) ss.7, 13, 17, 18, 28
DECISION:	See page 26 of judgment

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

CORAM: HODGSON, CJ in Eq.

Monday 27th September 1999

NO. 3258 OF 1999
S.C. TOURS PTY. LIMITED & ORS. V. SINGER & ORS.

JUDGMENT

1   On 17th November 1997, an agreement was made between SC Tours Pty. Limited (which I will call "SC"), George and Glenda Sampson, Leslie Singer, Australian Panoramic Coach Pty. Limited (which I will call "Auspan"), Sector Australia Pty. Limited (which I will call "Sector") and Keiko Adachi to settle proceedings No. 2035 of 1997 and No. 2344 of 1997 in the Supreme Court of New South Wales. That agreement provided, among other things, that Mr. and Mrs. Sampson should purchase from Mr. Singer his shares in SC, at a price to be determined by a valuer. There has been a valuation provided purportedly pursuant to this agreement, but there are disputes as to its validity and effect. 2   By their summons in these proceedings filed on 20th July 1999, SC and Mr. and Mrs. Sampson seek against Mr. Singer, Mr. Adachi, Sector and Auspan (1) a declaration that the valuation has a certain effect and is binding; (2) an order that the transfer of shares proceed; and (3) (in the alternative, and by amendment) an order that the valuation be completed in a certain manner. These orders are opposed by Mr. Singer. The other defendants have entered submitting appearances.

OUTLINE OF FACTS

3   SC was incorporated in 1990. Mr. Singer owned 50% of the shares, and Mr. and Mrs. Sampson owned the other 50%. SC owned buses and used them in the conduct of a business of providing tours. Its directors were Mr. Singer and Mr. and Mrs. Sampson, but since about April 1997 the effective control of the company has been with Mr. and Mrs. Sampson. 4   Sector was incorporated in 1992, owned equally by Mr. and Mrs. Sampson's daughter and Mr. Singer's brother. Its business activities were connected with those of SC, and the employees of both companies worked in the connected activities. 5   Auspan was incorporated in 1993, and has been substantially controlled by interests associated with Mr. Singer. 6   In the five years to 30th June 1997, SC was registered with the payroll tax office as an employer, but Sector and Auspan were not. 7   In about April 1997, disputes arose between Mr. and Mrs. Sampson and Mr. Singer. Mr. and Mrs. Sampson effectively excluded Mr. Singer from the business of SC, and caused SC to bring proceedings No. 2035 of 1997 against Mr. Singer, alleging inter alia that he had misapplied cash of the order of $600,000.00. Mr. Singer brought a cross-claim, alleging that Mr. Sampson was involved in a dishonest scheme to avoid tax. Mr. Singer also commenced proceedings No. 2344 of 1999 for the winding up of SC on the just and equitable ground. It was these two proceedings that were settled by the agreement of 17th November 1997. 8   There were in fact three agreements of that date. The principal one was the sale of shares in SC from Mr. Singer to Mr. and Mrs. Sampson, at a price determined by a valuer. Clauses 2, 3 and 4 of that agreement were in the following terms:

2. The price to be paid for the shares shall be determined by an independent consulting accountant experienced in the valuation of shares of private companies such person to be agreed by the Sampsons and Singer and in the event of failure to agree within 14 days of the date hereof, such valuer shall be appointed by the President for the time being of the Institute of Chartered Accountants. The valuer shall act as an expert and not an arbitrator and his valuation shall be binding on the Sampsons and Singer who agree to cooperate with the valuer and provide him with all information and documentation that he may require. The costs and expenses of the valuation (including any costs of reconstructing the accounts as at 30 April 1997) are to be borne as to one h alf by the Sampsons and as to the other half by Singer. Each shall pay to the valuer his or their share of such costs and expenses before the valuer releases the valuation to them.

3. The valuer shall carry out the valuation on the following bases:

(a) the valuation date shall be 30 April 1997 (the valuation date);

(b) the assets and liabilities (including goodwill, if any) of Sector and Auspan at the valuation date shall be brought to account and consolidated with the assets and liabilities of S C Tours to the intent that for the purpose only of valuing the shares in S C Tours, the assets, liabilities and businesses of S C Tours, Sector and Auspan shall be regarded as all part of the one entity, S C Tours, with the result that, inter alia, any loan accounts between the three companies shall not be treated as assets or liabilities (as the case may be) of the respective companies and shall be disregarded in the valuation;

(c) the debt due from S C Tours to Singer for his loan account with S C Tours (the loan account) shall be deemed to be nil;

(d) if as at the valuation date S C Tours has any liability to anyone for legal costs incurred to that date inconsequence of the dispute which gave rise to the proceedings, that liability will not be taken into account and shall be deemed to be the personal liability of the Sampsons.

4. The valuer is not to be pressed by the parties with submissions. The parties will be passive only but will promptly provide to the valuer such information as he requests provided however that the valuer shall take into account only actual liabilities (including payroll and other taxes and/or penalties by any or all of S C Tours, Sector and Auspan which liabilities must be determined before the valuation occurs) in arriving at his valuation.

9   The second and third agreements were mutual releases, which also contained covenants to keep all matters which gave rise to or arose in the proceedings confidential. 10   Prior to the settlement, an accountant Christopher Hall was engaged by Mr. and Mrs. Sampson. On the day of the settlement, he had made enquiries concerning payroll tax but was referred to the Parramatta Office of State Revenue. On 17th February 1998, he saw Ms. Kaczorek, an inspector at that office. A conversation took place, which is set out in paragraphs 11 to 14 of Mr. Hall's affidavit of 24th August 1999, as follows:

11. At the meeting I informed Ms. Kaczorek of the shareholdings and directorships of the three companies and went on to explain to the effect,


"The Manager of the three companies is Leslie Singer. The records of the companies are maintained by the accountant of S C Tours and some of the employees of each of the three companies are used in the businesses of the other two companies.

I wish to establish whether the Office of State Revenue considers the companies part of a group for the payroll tax provisions."

12. Ms. Kaczorek went onto ask me a number of questions to which I responded as set out hereunder:


KK: What are the mechanics of how the books of the companies are maintained, particularly in relation to wages?"

CH "The books are maintained by the accountant of S C Tours although some of the transactions are maintained independently of the other companies. However, as often happens, the amount of money in a bank account of a particular company often determines into which account money is banked or from which account money is drawn."

KK: "What type of businesses do the companies conduct?"

CH: "S C Tours and Sector are involved in providing mainly inbound bus and coach services and Auspan is involved in organising group tours."

KK: "Which employees are employed by which company and used by the other companies?"

CH: "The best way of answering this question is to give you these records" (and I handed to Ms. Kaczorek the records which I brought to the meeting, which records are exhibited and marked "CJH1").

KK: "What are the respective inputs of Leslie Singer and George Sampson?"

CH: "Mr. Singer is the Managing Director and runs the day to day affairs of each company. Mr. Sampson has minimal involvement in the day to day conduct of the companies and their businesses. He considers his role more of a guiding role and he attends the companies' premises occasionally to check matters such as bank statements, cheque books and the like."


13. Ms. Kaczorek said to me to the effect, "From what you have told me and these records, there is little doubt that the three companies are liable under the group provisions of the Payroll Tax Act."

14. I said to Ms. Kaczorek to the effect, "This approach to your office has been voluntary and has not emanated from any action by the Payroll Tax Office. You should take that account into account when establishing penalties. Also, whilst I understand there will be a liability, S C Tours in particular will have great difficulty in meeting any liability and the extent of penalties could make it impossible. Ms. Kaczorek said to the effect, "I will take all of that into account." Ms. Kaczorek also said to me to the effect, "Although the Office of State Revenue is entitled to look to S C Tours for payment of the liabilities of Auspan and Sector, it will not seek to extract from S C Tours the money payable by Auspan and Sector even if those companies are unable to pay the liabilities imposed on them."

11   On 20th February 1998, Ms. Kaczorek sent Mr. Hall calculations of payroll tax. On about 23rd February 1998, Mr. Hall received Notices of Assessment of payroll tax in relation to the three companies, the effect of which can be summarised as follows:

Year	SC TOURS	SECTOR	AUSPAN	TOTAL
1992/93	$16,609.08	$42,420.78	---------------	$59,029.87
1993/94	$25,568.35	$43,345.44	$33,226.04	$102,139.83
1994/95	$24,391.69	$18,665.68	$28,811.61	$71,868.98
1995/96	$23,327.71	$21,346.47	$23,158.28	$67,832.46
1996/97	$26,925.40	$26,536.80	$21,181.70	$74,643.90

12   On 3rd March 1998, a letter of instructions from Mr. Jenkins, the solicitor for Mr. Singer, and Mr. Hewett, the solicitor for Mr. and Mrs. Sampson, was sent to an accountant Warwick Finney. This letter set out the relevant clauses of the contract, and concluded as follows:

As the parties have bound themselves not to press you with submissions, they do not propose at this stage to do anything more than request you to acquaint yourself with the terms of the above clauses. If, having done so, you feel you require further clarification as to the requirements of the above clauses, would you be so kind as to state your queries in a letter and fax or post that letter to both of the above law firms. We will then endeavour to formulate a joint letter answering your queries.

The parties desire, and have so contracted, to have you approach your task with a completely independent mind bound only be the arrangements set forth in the above clauses, and without interference from any of them. They will, of course, provide you will (sic) all information, documentation or assistance that your may request.

13   On 28th April 1998, Mr. Finney wrote to these solicitors, asking for information. There ensued substantial correspondence, between June and August 1998, as to how this request should be dealt with. This resulted in a letter from both solicitors to Mr. Finney dated 4th September 1998, which inter alia enclosed financial statements of the relevant companies, noting that they did not include liability for payroll tax, and also enclosed the assessments for payroll tax. 14   On 13th October 1998, Mr. Finney wrote again to the solicitors with some questions, including a question numbered 2 in the following terms:

2. No financial statements have been prepared beyond 30 June 1996 for Sector or Auspan. I have been informed that both companies ceased operating about April 1997 and that there have been no activities of any nature since that date. You are aware that I am to include the assets and liabilities of these companies in the valuation of S C Tours but ignoring inter company loan accounts. The books of these two companies have not been finalised for the 1996/97 year and from the information with which I have been presented the loan account balances between the companies and S C Tours do not cancel out.

As I see the position I have two options. Firstly, I could insist that the accounts of Sector and Auspan be brought up to date with the inter company accounts in agreement. Secondly, I could make an assumption that the accounts of the companies are of little consequence to the valuation of S C Tours and disregard any effect they may have on the valuation. A problem with this approach is that it has been indicated to me that there are superannuation and group tax liabilities outstanding in Auspan but I have not been able to determine the amounts of such liabilities. Also I have no evidence that the companies did cease operating in April 1997.

If I were to adopt the second option of ignoring the effect the accounts of these companies have on the valuation of S C Tours, it could only be with the agreement of the parties. Would you please obtain instructions in this regard and advise me of the approach I should follow.

15   There followed further correspondence between the solicitors concerning a response to Mr. Finney's letter. In the course of that correspondence, in a letter to Mr. Hewett dated 15th February 1999, Mr. Jenkins stated the following:

With regard to the draft letter you have prepared to Mr. Finney, you make reference to the payroll tax liabilities of the companies. However, we understand that were no such actual liabilities as at the valuation date of 30th April 1997.

These liabilities arose when Mr. Hall approached the payroll tax authorities and this happened after settlement. Accordingly, whilst the superannuation and group tax liabilities ought to be taken into account, the valuer should be specifically informed that the payroll tax liability of each company was not an actual liability as at the 30th April 1997 and, pursuant to clause 4 of the Deed of Agreement, not be included for the purpose of the valuation.

16   Mr. Hewett responded in a letter dated 1st March 1999, in the following terms:

Any objective assessment of relevant provisions of the Pay-Roll Tax Act will make it clear that any employer (or member of a group) who pays wages of more than the stipulated amount (the relevant group so qualifies) should apply for registration as an employer (Section 12); every employer who is registered or required to apply for registration should furnish a return within 7 days of the close of each month (Section 13); and that every employer liable to pay payroll tax shall pay the tax within the time within which he is required to lodge the return (Section 17).

The payroll liabilities of the companies were undoubtedly actual as at April 1997 and the Commissioner has determined them before the valuation has occurred. The liabilities existed before Mr. Hall approached the Commissioner who has determined the amount of the liabilities.

17   On 29th March 1999, a letter from the two solicitors was sent to Mr. Finney, the relevant part of which was the answer to Mr. Finney's paragraph numbered 2, which response was as follows:

With the exception of the group's payroll tax liabilities, the parties have agreed that the accounts of Sector and Auspan need not be taken account of in the valuation of S C Tours. However, there are differences between the parties as to whether the payroll tax liabilities were actual debts as at April 1997 to be taken account of in the valuation.

We enclose copies of assessments of payroll tax and ask that two valuations be prepared, one including the payroll tax liabilities and the other excluding the payroll tax liabilities.

18   Mr. Finney issued his valuation on 18th June 1999. Paragraph 25 of his valuation dealt with the matter of payroll tax, as follows:

25. I have been advised of a liability of payroll tax imposed on each of S C Tours, Sector and Auspan and details of the amounts applicable to each company are contained in copies of assessments forming part of Annexure 2. Although the payroll tax assessments are to each company separately, under the payroll tax legislation, each company in a group is liable for the amount of the tax applicable to the group. From my examination of the financial statements there would be doubt that Sector or Auspan would be able to meet the amounts assessed to each of them and accordingly S C Tours must record as a liability, the whole of the amount assessed. This liability total $375,716.

19   The valuation went on to assess the value of SC at 30th April 1999, excluding payroll tax liability, at $91,572.00, making Mr. Singer's half share $45,786.00. However, it went on to say that if the payroll tax liability of $375,716.00 was taken into account, SC would have a negative value, and Mr. Singer's shares should be valued at nil. 20   There followed a number of letters from Mr. Jenkins to Mr. Hewett setting out Mr. Singer's contentions on the matter of payroll tax. The first was a letter of 5th August 1999, the relevant part of which was as follows:

Our client simply says that it is not correct to say (as para 1 of the summons suggests) that at the valuation date there existed an actual liability for payroll tax, penalties and interest. At that date any liability for payroll tax, penalties and interest was contingent only and not actual and the agreement provided that the valuation be made without taking account of any contingent liabilities.

We appreciate that Mr. Sampson's affidavit does not state but there can be no issue that the payroll tax assessments attached to his affidavit issued after the valuation date. Indeed they were the consequence of action taken by the Sampson interests after the date of the execution of the Deed. At the valuation date the prospect, in the future, of some revised payroll tax bills issuing was nothing more than a remote possibility.

21   Next, there was a letter of 20th August 1999, the relevant part of which was as follows:

Our client's case has always been that the shares must be valued on the basis of actual liabilities due and payable as at 30 April 1997. Any potential debts or contingent debts extant at 30 April 1997 (but not then payable) were not to be taken account of. Before giving his valuation the valuer was required to determine the quantum of the actual debts due and payable by any of the three companies including actual tax debts.

The agreement forbade the voluntary giving of any information to any public authorities of any of the matters thrown up in the settled proceedings and included in those matters were the circumstances that income had not been brought to account in the companies' tax returns and payroll tax had not been paid by Auspan and Sector.

What in fact occurred was that Mr. Hall, after the settlement contract, despite the agreement's embargo on voluntary disclosure to public authorities, made representation (which our side were in no way privy to), which resulted in the Department issuing Notices of Assessment for payroll tax in February 1998.

There is no evidence to suggest that the valuer ever went about the task of assessing actual tax or other liabilities payable as at 30 April 1997. The only assessment that has ever taken place is an assessment of payroll tax by the Office of State Finance on information provided by your side of the dispute to that Office. That assessment is for a period ending 30 June 1997 and includes penalties. We have no knowledge of what was told to the assessor by Mr. Hall or what assumptions were made by the assessor.

The whole matter was one for the valuer and not for the Office of State Revenue or anyone else. Indeed the valuer was supposed to be left very much to his own devices. The last thing that was supposed to happen with him was that one side would unilaterally present him with information which is exactly what occurred with the Office of State Revenue before it arrived at its assessments.

In essence, the admissions you seek are a concession that the sum of money that the valuer might have determined as payable for payroll tax as at 30 April 1997, if the issue had (as we intended) been left to him would have just happened to have turned out to be the same amount as the Office of State Finance assessed (in February 1998) as due on 30 June 1997.

The fact is none of us will ever know what the valuer might have determined as actually payable at the valuation date on account of payroll tax if the agreement had been duly performed according to its terms.

Our client cannot admit that as at 30 April 1997 any of the 3 companies were then indebted to the Office of State Finance for payroll tax or penalties thereon. All that our client concedes is that as at April 1997 those companies had contingent liabilities for payroll tax, the quantum of which, if any, was dependent on all manner of possible scenarios, conjectures and opinions. To the extent the actuality could be ascertained, that was a matter of the sole judgment of the valuer.

22   Then there was a letter of 23rd August 1999, the relevant part of which was as follows:

As for the more important matter of admissions, we do not consider that it is open to the parties, in the light of the events that have occurred, to litigate in these or any proceedings the issue as to what the actual liabilities of the 3 companies, for payroll tax/penalties etc, were as at 30 April 1997. That issue was wound up into the agreement of November 1997 and, according to our client's construction of the agreement, that issue was to be resolved, in a certain way, by the valuer. As we understand it, your client's claim is that the issue was resolved, in accordance with the agreement, by the issue of the Notices of Assessment.

What is between us is a question of construction of the agreement, not a question as to what, as a matter of fact and law, in truth was payable by any or all of these companies in April 1997.

It is our view that the matter can be concluded on 27 August 1999 as the matter of construction that it always was. We appreciate that the issue of the quantum of the companies' actual payroll tax liabilities at the valuation would or could have been contentious. But, in that events that have occurred, that issue is no longer alive. All that is alive is that you say the amount demanded in February 1998 was an actual liability in April 1997 and we say it was not.

We will oppose any attempt to vacate the hearing date in order for your clients to endeavour to prove, by evidence, what in truth and in fact the actual liabilities, if any, were.

23   Finally, there was a letter of 25th August 1999, the relevant part of which was as follows:

As we have come to understand your position (as expressed in your letter of 1 March 1999) you say that, under the way the Payroll Tax legislation operated from 1992 to 30 April 1997, there existed, on 30 April 1997, binding each of the three companies, an obligation to pay an ascertainable sum of money - an actual liability within the meaning of the agreement.

We do not dispute that the Payroll Tax legislation worked so as to create, depending on the existence of certain facts, current obligations, binding employers, to make payments of ascertainable sums of money.

Under the agreement, as it stood in November 1997, we say the determination of the existence as at 30 April 1997 of an actual liability to pay money to the Payroll Tax Office, and the quantification of the amount of that sum, if any, was a matter for the valuer.

As we understand your letter of 1 March 1999 you say there was a liability to pay payroll tax extant at 30 April 1997. "The liabilities existed before Mr. Hall approached the Commissioner who has determined the amount of the liabilities", you said. This was reactive to our letter of 15 February 1999 were (sic) we said "These liabilities arose when Mr. Hall approached the payroll tax authorities and this happened after settlement."

We are saying that the Commissioner's demand was not a liability that was payable in April 1997 and you are saying that the Commissioner's demand was no more than a determination by him of the quantum of a liability that did in fact exist as at 30 April 1997.

It was with this difference of opinion between us that we wrote our joint letter of 29 March 1999 to Mr. Finney. We supplied him with evidence of the amounts demanded by the Commissioner and explained to him that "there are differences between the parties as to whether the payroll tax liabilities were actual debts as at April 1997" and asked him to complete his work with one valuation on the basis that the amounted (sic) demanded by the Commissioner was an actual debt in April 1997 and one on the basis that it was not.

Whether the agreement contemplated Mr. Hall going to the Payroll Tax Commissioner to have the Commissioner calculate the quantum, if any, of any moneys that might have been actually payable back in April 1997 with the parties, as it were, agreeing to accept the Commissioner's figure as final, is a pure matter of construction of the agreement of November 1997. We are very much at issue about this question of interpretation of the written agreement.

Whether the Commissioner's activity, culminating in the issuing by him of the February 1998 demands, was a process of ascertaining, for the parties, the quantum of the three companies' actual liabilities as at 30 April 1997, is very much a question of interpretation of the legislation. We are clearly at issue on these matters.

Because of the way the parties have conducted themselves up to the time of the commencement of the construction proceedings, it is simply not open to either side to now broaden the issues.

The plaintiffs apparently wish to establish, either by evidence, or by agreement as to facts, that at all material times from 1992 or 1993 to April 1997 the three companies were a "group" within the meaning of the Pay roll (sic) tax legislation. We understand that if they were a group, or if any two of them were a group, that circumstance would affect the quantification of the amount of payroll tax that had, from time to time, to be paid to the Commissioner.

This sort of evidence can only be relevant to show what the so-called group's actual payroll tax liabilities were as at 30 April 1997. But this is not an issue which the parties are entitled to raise or litigate. It is simply irrelevant. You have said, on page 2 of your letter, that you agree with this.

If the amount demanded by the Commissioner in February 1998 is, as you say, a determination of an actual liability, within the true meaning of the agreement of November 1997, your client will be entitled to the declaration it seeks. If, as we say, the liability to comply with the Commissioner's demands did not exist in April 1997, your clients will fail.

24   Mr. Jenkins sent a second letter to Mr. Hewett dated 25th August 1999, seeking admission of a number of facts including the following:

Until the service of the affidavit of Mr. Hall at about 12.45pm on 25 August 1999, there had been no communication to the Singer side of the record by the Sampson side of the record of any of the events and conversations deposed to by Mr. Hall in paragraphs 10, 11, 12, 13, 14 and 15.

25   Mr. Hewett responded with a letter of 26th August 1999, which dealt with the paragraph numbered 1 as follows:

1. As mentioned above, since March 1998 your firm has had copies of the Notices of Assessment which were made available by Mr. Hall. Also, we made available to you copies of the assessments at about the same time. You have noted that the notices were served on Mr. Hall's firm. Otherwise, the facts are admitted, but again, we observe that your client took no action to challenge the assessments or ascertain the basis on which they were made.

26   The final relevant letter prior to the hearing on 27th August 1999 was a letter from Mr. Jenkins to Mr. Hewett dated 26th August 1999, the relevant part of which was as follows:

There seems, despite all our efforts to spell out for you in writing, the substance of our client's defence to your claim for a declaration that the 3 companies were actually liable, in April 1997, to pay to the Pay Roll Tax Dept the sum of money assessed by that Department in February 1998, some lack of understanding on your part as to what that defence is.

We do not suggest that the assessments carried out under s.18 were invalid or ultra vires. In our letter to you of 19 August 1999 (para 5) we advised "If it is of any assistance to you, it is not proposed to suggest that the sums demanded by the Office of State Finance from February 1998 are sums that the office arrived at in any arbitrary or invalid manner. They would appear to be claims that the Office would have title to sue for as and from February 1998". Consistently with this position we have sought the admission number 3 in our letter that your letter of today is in answer to.

If the Summons sought a declaration that the three companies are presently indebted for the sum assessed by the Commissioner in February 1998, Mr. Singer would not be defending it.

What we disagree with is the proposition, included in the declaration sought, that the sum assessed by the Commissioner in February 1998 was, at the valuation date, an actual liability within the true construction of the written agreement of November 1997.

With respect, the fallacy in your thinking is that you appear to hold that if accrued payroll tax debts are of their nature actually payable from month to month (which we said in the 4th paragraph of our letter of 25 August was so) it follows that the sum assessed by the Commissioner in February 1998 was actually due and payable in April 1997. It is not our side's fault that you have continued to adhere to this non sequitur.

You are responsible for the drafting of the Summons. You have advanced the propositions that its prayers for relief assumes. You have chosen the battle ground and, in the process expressly confirmed our view that "it is not open to the parties to litigate in any proceedings the amount of the actual liabilities of the companies for payroll tax/penalties etc. as at 30 April 1997" (your letter 24 August 1998, page 2).

Either you are correct and the Commissioner's figure is an actual liability as contemplated by the agreement, or you are incorrect and that is an end to the matter.

27   It was common ground at the hearing that SC and Sector at least should be grouped for payroll tax purposes. However, Mr. Singer contended that Auspan should not be grouped with either of the other companies; and if that were correct, the amounts set out in the Notices of Assessment would be excessive (because there would be separate thresholds for SC and Sector on the one hand and Auspan on the other), and SC would have no liability in relation to Auspan's employees. It would seem that if payroll tax was assessed for SC and Sector on that basis, then the payroll tax owing by SC in respect of the relevant periods up to 30th April 1997 would be $63,862.22, and that the payroll tax owing by Sector would be $87,776.55. It is common ground that each company in such a group is liable for the payroll tax for the whole of the group. I have been provided also with an estimate of interest on those amounts up to 30th April 1997, being $15,489.67 for SC and $30,575.77 for Sector, but there is no agreement as to the calculation of that interest.

ISSUES

28   The principal issue raised by the parties is which of two valuations of Mr. Singer's shares submitted by the valuer should be adopted as the price of the shares under the agreement of 17th November 1997, nil or $45,786.00. In short, Mr. Tobias QC for the plaintiffs submitted that it should be nil, because SC's payroll tax liability was an actual liability at valuation date, even though the Notices of Assessment did not issue until February 1998; whereas Mr. Motbey for Mr. Singer submitted that the only liability for payroll tax submitted to the valuer for consideration was the liability created by the Notices, and that liability did not exist at the valuation date. 29 This issue requires construction of the agreement between the parties (as affected by later correspondence), and also consideration of the effect of the Payroll Tax Act 1971, the relevant parts of which are as follows:

7(1) Subject to, and in accordance with, the provisions of this Act, there shall be charged, levied, collected and paid, for credit of the Consolidated Fund in the Treasury, on all taxable wages pay-roll tax:

(a) ascertained in accordance with Schedule 1 in respect of such of those wages as are paid or payable after the month of June 1995 and before the month of July 1996, and
(b) ascertained in accordance with Schedule 2 in respect of such of those wages as are paid or payable after the month of July 1996.
(c)--(g) (Repealed)

(2) If taxable wages are paid after a month in which they became payable, pay-roll tax is to be charged in respect of those wages at the rate applicable to the month in which they became payable.
....


17.(1) Every employer liable to pay pay-roll tax shall pay the pay-roll tax within the time within which he or she is required by this Act to lodge the return of the wages in respect of which the pay-roll tax is payable.

(1A) (Repealed)

(2) The amount of pay-roll tax that an employer is required to pay in relation to a return of wages in respect of a financial year or a part of a financial year shall be a proportion (equivalent to the ratio of the number of days to which the return relates to the number of days in the financial year) of the pay-roll tax that would be payable by the employer for the whole of that year.

(3) For the purposes of subsection (2), a reference to the pay-roll tax that would be payable by an employer for the whole of a financial year is a reference to the amount of pay-roll tax ascertained in accordance with this Act in respect of a multiple (equivalent to the ratio of the number of days in the financial year to the number of days to which the return relates) of the taxable wages paid or payable by the employer for the period to which the return relates.

(4) For the purposes of this section:

(a) a reference to a part of a financial year includes a reference to a prescribed period referred to in section 11C or 16L, and
(b) a reference to the number of days to which the return relates is a reference to the number of days in respect of which wages were paid or payable.
.....

18.(1) Where the Chief Commissioner finds in any case that pay-roll tax or further tax is payable by any employer, the Chief Commissioner may:
(a) assess the amount of taxable wages or, where relevant, interstate wages paid or payable by the employer, and
(b) calculate the pay-roll tax or further tax payable by the employer.

(2) Where:
(a) any employer fails or neglects duly to furnish any return as and when required by this Act or by the Chief Commissioner,
(b) the Chief Commissioner is not satisfied with the return made by any employer, or
(c) the Chief Commissioner has reason to believe or suspect that any employer (though he or she may not have furnished any return) is liable to pay pay-roll tax, the Chief Commissioner may cause an assessment to be made of the amount upon which, in the Chief Commissioner's judgment, pay-roll tax or further tax ought to be levied and that person shall be liable to pay-roll tax or further tax thereon, except in so far as he or she establishes on objection or appeal that the assessment is excessive.

(3) Part 3 of the Taxation Administration Act 1996 applies to an assessment under this section.

30   There were also a number of subsidiary issues. 31   First, did the plaintiffs lose their right to rely in any way on the Notices because, without the knowledge or consent of Mr. Singer, they had approached the relevant tax authorities in the way described in Mr. Hall's affidavit? 32   Second, was there an estoppel favouring the plaintiffs, to the effect that the only issue between the parties was whether payroll tax was, at the valuation date, an actual or contingent liability? 33   Third, if neither of the valuations was a valid and binding valuation under the agreement, what should be done? The plaintiffs sought an order setting aside the valuation, and a referral back to the valuer with full information concerning payroll tax. Mr. Singer submitted that if this were done, the valuer should also be given full information concerning the diversion of cash from the business, which could justify a higher valuation of the business.

SUBMISSIONS

34   Both sides provided written submissions, which I will leave with the papers. Also, by leave, they provided supplementary written submissions after the hearing concluded, on the question of estoppel. I will be brief in outlining the parties' submissions. 35   Mr. Tobias QC for the plaintiffs submitted that the combined effect of ss.7, 8 and 17 of the Act was that the employer was liable to pay tax within the time given for lodgment of a return; and that this liability was not dependent on the issue of an assessment. The agreement of 17th November 1997, in cl.4, contemplated that the actual quantum of liabilities might be determined after the valuation date; and this is what happened by the issue of the Notices. 36   Mr. Motbey for Mr. Singer submitted that the question for the valuer was what a hypothetical purchaser would have paid as at the valuation date. The valuer was not entitled to take into account information which became available later: see Gosford Shire Council v. Green (1980) 48 LGRA 201 at 207; Barisa Pty. Limited v. Varga Bros. Investments Pty. Limited (1991) 4 ACSR 620. Under the agreement, only actual liabilities were to be taken into account, that is, liabilities presently due and owing: see National Bank of Australasia Limited v. Mason (1975) 133 CLR 191; Reylan v. Lamag Holdings (1992) NSWConv.R. 59,503. It was certainly not intended that the amount of any liability for payroll tax be determined by payroll tax authorities: voluntary disclosure was prohibited by the confidentiality agreement, and the agreement required that all relevant matters be determined by the valuer, who was not to be pressed by the parties. Further, it was inequitable that the valuer be given this material concerning payroll tax, yet not told about the profitability of the business being higher than that disclosed by the accounts, by reason of the diversion of cash. 37   In March 1999, there were disputes as to whether the liabilities in the Notices of February 1998 were actual liabilities as at the actual valuation date; and the joint letter of 29th March 1999 amounted to an agreement that if they were actual liabilities the whole of them should come off; and if not, nothing should come off. In fact, the liabilities in the Notices were the result of exercises of discretion by the Commissioner, which displaced any such liabilities as may have arisen earlier. Further, they were the result of a deal whereby the three companies were incorrectly grouped, in return for the payroll tax authorities agreeing not to claim from SC the liability arising in relation to the employees of the other two companies. The Notices also included liabilities for two months after the valuation date, and penalties. 38   Mr. Tobias submitted that the parties treated the Notices merely as a convenient quantification of the pre-existing statutory liability: there was in fact no dispute as to quantum, but merely as to whether there was some liability or none. At worst for the plaintiffs, there was a conventional estoppel that the only issue between the parties was whether payroll tax liability as at the valuation date was actual or contingent. 39   In written submissions provided after the conclusion of the case, Mr. Motbey first set out what he understood to be the plaintiffs' case on estoppel, as follows:

a. At all material times up to the conclusion of the March 99 variation arrangement, the Sampson side believed that if their legal view that the Payroll tax legislation operated to create, from month to month, actual liabilities (in the (apparently agreed) sense of debts then due and payable) was correct, then the Singer side would accept that the sum assessed by the lady at the Payroll tax office in February 1998 should be treated as having been payable in April 1997.

b. The state of mind referred to in a. was induced by conduct/representations of the Singer side.

c. In that state of mind, so induced, to their potential detriment, the Sampson side entered into the March 1999 variation arrangement.

d. In the result, it is unconscionable for the Singer side to say that if the Payroll tax legislation does operate to create actual ascertainable liabilities they nonetheless do not accept that the sum assessed by the lady at the Payroll tax office in February 1998 can be treated as having been payable in April 1997.

40   Mr. Motbey submitted that the allegation of belief could not be made out merely on documents, in the absence of sworn evidence, especially in the situation where the parties were acting carefully with legal advice. He further submitted that the representation was not established. Even if the assertion in Mr. Jenkins' letter of 15th February 1999, that payroll tax liabilities arose when Mr. Hall approached the payroll tax authorities, was taken to be based on there being no previous liability for payroll tax, this would not preclude later reliance on other grounds: see Shepherd v. Felt & Textiles (1931) 45 CLR 359; Honner v. Ashton (1979) 1 BPR 9,478. 41 As to the other two elements, there was no evidence of detriment by way of a lost opportunity to get the valuer to value the payroll tax liability himself. As for conscionability, it was in fact unconscionable for Mr. and Mrs. Sampson, in breach of the confidentiality agreement, to go to the Payroll Tax Office, to conceal the deal that had been made there, and yet claim that all liability should be set off against the SC assets. 42 In his written response, Mr. Tobias submitted that the estoppel relied on was an estoppel by convention, namely the conduct of relations on the basis of an agreed or assumed set of facts: see Con-Stan Industries of Australia Pty. Limited v. Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226 at 244; Waltons Stores (Interstate) v. Maher (1988) 164 CLR 387; Foran v. Wight (1989) 168 CLR 385; and Commonwealth of Australia v. Verwayen (1990) 170 CLR 394. The agreed or assumed state of facts, up to 20th August 1999, was that the valuer had completed his task and that there was only one issue between the parties, namely, whether the payroll tax liability was an actual or contingent liability at the valuation date. That both parties proceeded on this assumption or agreement appeared from the correspondence. 43 Thus, there was no need to prove a representation, or actual detriment: see Grundt v. Great Boulder Pty. Goldmines Limited (1937) 59 CLR at pp.674-5; Waltons Stores 164 CLR at 414. In so far as it was submitted by Mr. Motbey that any previous liability for payroll tax merged in the Notices of Assessment, and that the issue of the Notices irreversibly changed the parties' position, these were incorrect and irrelevant. Questions of conscience were of less significance in a case founded on estoppel by convention: see Legione v. Hateley (1983) 152 CLR 406 at 430; and in any event, Mr. Hall's approach to the payroll tax office was in no way unconscientious; nor was there any evidence of a deal made on that occasion. Even if there were such a deal, that would be irrelevant to the legal position as at the valuation date.

DECISION

44 In my opinion, there was a liability for payroll tax as at the valuation date: it is clear that SC had not paid all the payroll tax which it was liable to pay, and it is clear that the liability imposed by s.17 of the Payroll Tax Act is an actual liability, not a contingent or future liability. 45 The quantum of that liability, on the facts now before the Court, was at least $63,868.22 in respect of the employees of SC and at least $87,776.55 in respect of the employees of Sector. At least those two companies constituted a group for the purposes of the Act, so that SC was jointly and severally liable for the whole of those two amounts. 46 However, under the agreement of 17th November 1997, all questions concerning the valuation, including the quantum and effect of payroll tax liability, were for the valuer to determine. Had he addressed the question, he could have considered inter alia (1) how much of Sector's liability would have been enforced against SC; (2) whether those two companies would have been grouped with Auspan, and the effect of such grouping; and (3) the question of interest and penalties. 47 In my opinion, the approach by Mr. Hall to the payroll tax authorities in February 1998 was not a breach of any valid agreement between the plaintiffs and Mr. Singer. The provision of information relevant to the payment of payroll tax was required by law, and in my opinion, that obligation, arising primarily under s.13 of the Act, was a continuing obligation: this has some confirmation from s.28(2) of the Act, which requires executors and administrators of employers to provide returns not previously provided by deceased employers. If the confidentiality agreement were to be interpreted as a promise not to comply with such legal requirements, it would to that extent be invalid. However, there is some force in the submission that Mr. Hall went beyond merely disclosing information which he was obliged to disclose: it can be said that he conceded the grouping of three companies, which may not have been justified on the facts; and that also he obtained a concession in favour of SC. 48 However, at that time, it was proposed that the valuation take into account the assets and liabilities of all three companies, treating them as one entity; and I have not been referred to any evidence that the plaintiffs were then aware that Mr. Singer claimed that Auspan was not, along with SC and Sector, part of a group for payroll tax purposes. Accordingly, any concession concerning grouping (although affecting the threshold for payroll tax) seems of little significance, and the tax authority's agreement not to pursue SC (accepting that it would otherwise be relevant, as manifesting a potential existing at the valuation date) had no possible relevance to the questions actually facing the valuer. In those circumstances, I would not find any unconscientiousness in either the approach to the tax authorities, or the non-disclosure of the outcome at that time. 49 The joint letter of 4th September 1998 noted that the financial statements did not include the liability for payroll tax, and enclosed the Notices of Assessment; and these must be taken as agreed communications to the valuer. Still, however, there was no change in the basis of the valuation, and the parties were leaving it to the valuer to make what he wished of the Notices. Presumably, despite the inclusion of liabilities in respect of two months after the valuation date and the grouping of the three companies, Mr. Singer was content to treat the Notices as an indication of the quantum of payroll tax liability. Again, I see no unconscientiousness on the plaintiffs' side at this point. 50 Prior to the joint letter of 29th March 1999, Mr. Jenkins raised the point whether SC's payroll tax liabilities were actual as at the valuation date, or only contingent. In my opinion, this question was raised as to SC's liabilities for payroll tax generally, and not as to its particular liabilities asserted and quantified in the Notices of Assessment. 51 The allegation in Mr. Jenkins' letter was that the companies had no payroll tax liabilities at the valuation date, not that the particular payroll tax liabilities established by the Notices of Assessment were not actual liabilities at that date: the letter asserted, with reference to "the payroll tax liabilities of the companies", "there were no such actual liabilities as at the valuation date". Plainly, this is how it was understood by Mr. Hewett, when he responded "The payroll liabilities of the companies were undoubtedly actual as at April 1997 and the Commissioner has determined them ...". So, in my opinion, that was the issue between the parties when the letter of March 1999 was written. There was no issue as to whether the quantum determined by the Commissioner was the correct quantum to apply to the valuation date, or whether the liabilities established by the Notices of Assessment were different from any actual liabilities existing at the valuation date, or whether the valuer should not have regard to the Notices of Assessment as an indication of any such actual liabilities. Those issues were raised by the Singer interests for the first time only after the valuation issued. 52 In my opinion, it was an implied term of the agreement made in the joint letter of 23rd March 1999, that, depending upon the true position concerning payroll tax liability, the parties would accept one or other of the valuations arrived at by the valuer. Any other view would make the request for two valuations fatuous. Certainly Mr. Motbey, in his primary submissions, accepted this: the real dispute between the parties concerned the precise identification of the contingency. In my opinion, having regard to what I have found to be the issue then raised between the parties, the agreed contingency was that the valuation taking into account payroll tax liabilities should be accepted, if the payroll tax liabilities of SC (however quantified) were actual liabilities at the valuation date. I do not accept Mr. Motbey's submission that the agreed contingency was such that the valuation without taking account of the liabilities should be adopted, unless the particular liabilities established by the Notices existed at the valuation date, irrespective of whether other actual liabilities for payroll tax then existed. Accordingly, since the payroll tax liabilities of SC were actual liabilities at the valuation date, the agreement requires acceptance of the nil valuation. 53 Because I take that view concerning the agreement made by the letter of 29th March 1999, it is unnecessary for me to consider the alternative basis put by Mr. Tobias, namely the existence of a conventional estoppel. 54 However, it was also agreed in the joint letter of 29th March 1999 that the valuer should not take any account of the accounts of Sector and Auspan. In my opinion, that agreement meant that the possibility of insulating SC from the payroll tax liabilities in relation to the employees of Sector and Auspan became relevant, certainly to Mr. Singer's acceptance of the Notices as an indication of the quantum of the liabilities, and possibly to the valuation exercise itself; and the Notices of Assessment thus became misleading to the extent that they suggested that the whole of the assessed amounts should be treated without question as liabilities of SC. In my opinion, when that agreement was contemplated the plaintiffs became obliged to draw the arrangement offered by the Payroll Tax Office to the attention of Mr. Singer, so that if Mr. Singer wished, the valuer could be alerted to the necessity of at least considering how much of the amounts in the assessment could properly be considered as liabilities of SC to be set off against SC's assets. The failure of the plaintiffs to do so amounts in my opinion to a material misrepresentation, albeit on the evidence an innocent one. I would infer that the agreement in the letter of 29th March 1999 was induced, at least in part, by that misrepresentation. 55 No application has been made on behalf of Mr. Singer to set aside the agreement of 29th March 1999 for misrepresentation. In the written submissions supplied after the conclusion of the case, application was made to put on a cross-claim seeking orders setting aside the valuation and requiring a fresh valuation, with the valuer being given information not only about payroll tax but also about the diversion of cash from the business; but the result of setting aside the agreement of 29th March 1999 would merely be to restore the position to what it was before that agreement, so that the valuer would perform his task on the basis of the original agreement of November 1997, plus any intermediate agreements and instructions, and any such further agreement or instructions which may be provided in the future. No claim is made by Mr. Singer for damages for misrepresentation: in any event, I do not hold the misrepresentation to be fraudulent, so that the availability of an action for damages would be very doubtful. 56 I do not think this means, however, that no consequences whatever could flow from my finding of what amounts to innocent misrepresentation. The plaintiffs are seeking specific performance, and equity has a discretion to refuse specific performance unless the plaintiffs do equity. If it appeared on the material before me that the valuer would or may have reached a different result if all circumstances had been disclosed, then it may well be appropriate to require the plaintiffs to do equity by accepting that different result. 57 In my opinion, if the valuer had been given full information, he could not without plain error have taken any figure less than $63,868.22 as the amount for payroll tax to be set off against the assets of SC. In addition, he could have considered whether to add to that figure interest (having regard to the chance of interest being remitted under s.25 of the Taxation Administration Act 1966), penalty (having regard to the chance of penalty being remitted under s.33 of the Taxation Administration Act), an appropriate sum in respect of the liability of Sector (such liability being at least $87,776.55), and an appropriate sum for the chance that Auspan would also be included as part of the one group. 58 I have been provided with an interest calculation of $15,489.67, making a total for SC of marginally under $80,000.00. In my opinion, there is a very high probability that the valuer would have adopted a figure no less than this sum. There is also some probability that, notwithstanding the arrangement adopted in February 1998 by the Payroll Tax Office, he would have allowed something for the chance in April 1997 that SC would be pursued for Sector's liability. Furthermore, the arrangement adopted by the Payroll Tax Office in February 1998 was on the basis that Auspan was included in the group, producing a figure of over $110,000.00 for payroll tax and interest for SC alone. 59 These probabilities were not put to the test, because of what I have held to be the plaintiffs' innocent misrepresentation, and it could be contended that the plaintiffs should not be given the benefit of any doubt about the matter. However, on the whole, I think the chance that the valuer would have come up with a figure less than the $91,572.00 necessary to wholly cancel out the assets of SC is so small that it can be disregarded. For that reason, I do not think the plaintiffs need to make any concession in order to do equity. 60 It remains to consider Mr. Motbey's contention concerning the extra profitability of SC which was not disclosed to the valuer. The matter arises in this way. 61 It appears to be common ground between the parties that throughout the period from about January 1992 until about April 1997, the business conducted by SC and Sector provided services to tourists, some of whom paid for their trip with Japanese yen in cash; and that during this period, there was a system in place under which clerks of the business kept separate accounting records of the yen cash receipts, which were not recorded in the ordinary books of the business and which were not brought to account for income tax purposes. In the proceedings No.2035 of 1997, one of the proceedings settled by the agreement of November 1997, the Sampsons claimed that they had only just found out about the yen cash system, and that Mr. Singer had misappropriated all the yen cash and used it for his own purposes: in the Statement of Claim, the Sampsons alleged that an amount estimated to exceed $600,000.00 had been taken during the period in question. Mr. Singer put on a cross-claim in which he alleged that Mr. Sampson was involved in the yen cash system, with intent to defraud the income tax authorities. It appears that Mr. Singer also denied that the amount involved was as much as $600,000.00: it appears that he claimed the figure was something like one-half of that figure. 62 Mr. Motbey submitted that it was inequitable for the Sampsons to approach the payroll tax authorities as they had done, yet not make a similar approach to the income tax authorities, disclosing the income tax avoided. Although this does not appear to be spelt out fully in the submissions, I have assumed that the purpose of this submission is to suggest that the profitability of the business was really much higher than found by the valuer, justifying a higher valuation for the shares, presumably to an extent that would not be balanced by any higher liability for income tax that might go with this approach. 63 In my opinion, there is a difference between the income tax situation and the payroll tax situation. On the contention of Mr. and Mrs. Sampson, it would appear that the companies, and in particular SC, would not be liable to pay income tax on the cash money, because SC never had the benefit of it: on their account, it was all misappropriated by Mr. Singer. In those circumstances, without resolving the factual dispute which was raised in the earlier proceedings, I cannot make a finding that the Sampsons or SC were under an obligation to go to the income tax authorities and disclose the allegations concerning the yen cash system. Plainly, under the terms of the main agreement of November 1997, there was no duty on either party to disclose the allegations concerning the yen cash system to the valuer. 64 For those reasons, I do not see any force in Mr. Motbey's contentions. Mr. Tobias in fact objected to the material concerning the yen cash, as being irrelevant. I postponed my decision on that objection. Although I have not given effect to Mr. Motbey's submissions, I consider that the material is relevant, at least as context, so I do admit it. 65 This material has brought to my attention that both parties involved as principals in the business of SC and Sector from January 1992 until April 1997 accept that substantial sums of cash money, some hundreds of thousands of dollars, were taken out of the business, with the result that income tax which should have been paid on those sums was not paid. In those circumstances, I believe I should send a copy of this judgment to the income tax authorities, so that they can look into the matter further if they wish to do so. 66 For those reasons, in my opinion the plaintiffs should be given substantially the relief sought in the summons. However, the dispute was at least in part the result of an innocent misrepresentation by the plaintiffs, and my tentative view is that each side should bear its own costs.

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Last Modified: 01/04/2002