Stationery Importers Pty Ltd v Deputy Commissioner of Taxation

[2010] QSC 375

SUPREME COURT OF QUEENSLAND

CITATION:

Stationery Importers Pty Ltd v Deputy Commissioner of Taxation [2010] QSC 375

PARTIES:

STATIONERY IMPORTERS PTY LTD
ACN 116 053 322
(applicant)

v

DEPUTY COMMISSIONER OF TAXATION
(respondent)

FILE NO/S:

BS3587 of 2010

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

6 October 2010

DELIVERED AT:

Brisbane

HEARING DATE:

27 September 2010

JUDGE:

Martin J

ORDER:

Application dismissed

CATCHWORDS:

CORPORATIONS – CHARGES, DEBENTURES AND OTHER BORROWINGS – OTHER MATTERS – where the respondent issued the applicant with a Notice of Intended Legal Action – where there was a typographical error in the final date for payment – where the applicant sought to enforce that date – where the respondent issued the applicant with a statutory demand for payment – whether the statutory demand should be set aside

ESTOPPEL – GENERAL PRINCIPLES – where the applicant’s supporting affidavit discloses facts which might give rise to estoppel – where estoppel was not explicitly adverted to in the supporting affidavit – whether the applicant is entitled to raise estoppel

Corporations Act 2001 (Cth), s 459G, s 459J(1)

Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452

COUNSEL:

N James (sole director of the applicant granted leave to appear) for the applicant

M J Byrne for the respondent

SOLICITORS:

The applicant self-represented

ATO Legal Services Branch for the respondent

[1] This is an application under s 459G of the Corporations Act 2001 (Cth) (“the Act”) to set aside a statutory demand made by the respondent upon the applicant and served on or about 22 March 2010.

[2]      The basis of the application appears in the supporting affidavit of the applicant as follows:

“The Applicant says that there is good reason why the demand should be set aside, namely, that the Respondent and the Applicant had entered into an agreement for the payment of the subject monies, and that agreement is being breached by the Respondent, by the Respondent serving the statutory demand. In the circumstances further reliance on the notice of demand would be unconscionable, an abuse of process, or produce a substantial injustice.”

[3] Notwithstanding the reference to a “substantial injustice”, the basis upon which the applicant proceeded was not with respect to a defect in the demand, that is, under s 459J(1)(a), but under s 459J(1)(b), namely, that there is some other reason why the demand should be set aside.

[4]      In earlier proceedings the possibility of the respondent being estopped from making the statutory demand was raised. The material contained in the applicant’s supporting affidavit discloses some facts which might give rise to an estoppel. Thus, the applicant is entitled to raise this point even though it was not explicitly adverted to in the affidavit: see Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452.

[5]      The applicant commenced trading in late 2007 under its then name, Office King Pty Ltd. It did not lodge any tax returns, or any business activity statements, or pay any tax for some time.

[6]      At some time before April 2009, the Australian Taxation Office (“the ATO”) became aware of the applicant’s failure to comply with its obligations under the relevant tax legislation. It appears that some form of an audit was conducted. At that time the sole director of the applicant was Duncan James. (He was replaced by his father, Noel James, earlier this year – after the letter from the respondent threatening legal action.) He had a series of conversations with an employee of the ATO. As a result of those discussions the applicant started to make payments in reduction of its tax liability. In April 2009 the applicant started to make payments at the rate of $3,000 a week.  In May 2009 it appears that that amount was increased to $4,000 a week and in or about August or September 2009 the applicant offered to make payments of $10,000 a month. The applicant did not confirm any of these arrangements in writing.

[7]      During this time Duncan James had been dealing with the same employee at the ATO. Duncan James said, in cross-examination, that before Christmas 2009 he contacted the employee and told her that he did not think that the company could continue with the $10,000 a month and asked if it could be changed to $5,000 a month instead. He said:

“She said she didn’t see any problem with that and we broke for Christmas.”

[8]      Prior to that conversation which Duncan James said occurred, the applicant had defaulted, at least once, on the payment arrangement for $10,000 a month.

[9]      The applicant was also being represented at that stage by its accountant, Graeme Raftery. Mr Raftery was also dealing with the ATO and in September 2009 requested the ATO agree to a payment plan whereby the applicant would make payments of $10,000 a month for 12 months, then $20,000 a month for seven months, and the balance of $25,000 monthly after that until the debt was paid down. Although that request appears to have been made, no action was taken on it by the ATO.

1. In cross-examination Duncan James said that towards the end of December he sent to the ATO officer with whom he had been dealing a spreadsheet which showed that making payments of $5,000 a month, and assuming an interest rate of one per cent a month, would mean that the total tax debt would be paid by some time in 2018. Duncan James relied entirely upon his recollection of conversations he had with the ATO officer as he did not maintain appropriate written records of his dealings with her. There was no evidence that that spreadsheet had been received by the ATO. It was put to him that there had been no agreement whereby the applicant could reduce its payments to $5,000 a month. He accepted that there was no written agreement to that effect and said that he believed that the employee had agreed. He was asked what the employee said to make him believe that she had agreed to the proposal. His answer was:

“The same as all the other discussions we had, which was me saying, ‘I think we’re going to need to change the amount. I’ve redone my figures. This is what I think we can pay a month.’ And I didn’t get a no, I didn’t get a particular written thing – but she said, ‘that sounds fair enough,’ sort of thing. I can’t remember the conversation.”

1. The officer from the ATO with whom Duncan James had been dealing was not called to give evidence. There was evidence, though, that the ATO maintains a computer program whereby all oral communications with taxpayers are noted and recorded. There is no record of any such conversation or agreement. He said in evidence that he had discussed the spreadsheet, referred to above, with the ATO employee. This was, to be charitable, an embellishment. He said he did not post the spreadsheet until after the conversation he alleges occurred. Further, he said that he sent it without a covering letter.

1. The importance of the alleged agreement between Duncan James and the ATO employee arises with respect to his belief when he received a letter from the respondent on or about 12 January 2010. That was a letter advising of intended legal action by the respondent. So far as is relevant it provides:

“NOTICE OF INTENDED LEGAL ACTION/GARNISHEE

An amount of $319,664.12 remains outstanding on your account, details of which are as follows:

Integrated Client Account      $319,664.12

Unless payment in full is received by close of business on the date shown hereunder, it is our intention to issue legal proceedings for recovery of the outstanding amount. This legal action for recovery will commence without further notice. Legal costs incurred in connection with this action may also be payable by you.

Other action which may be taken without further notice is to issue a notice in accordance with the provisions contained in section 260-5 of the Taxation Administration Act 1953, to a third party that may owe you money or to a financial institution that holds monies on your behalf. Such a notice requires the third party to make payments directly to the Commissioner.

You are reminded that where any amount is not paid by the due date, the general interest charge (GIC) accrues on the outstanding balance until the entire amount has been paid. Interest is calculated on a daily compounding basis. GIC is currently imposed at a rate of 10.95% per annum (reviewed every three months). The GIC is tax deductible in the year that it is incurred.

If you have paid the amount outstanding in full, or wish to discuss payment, you must contact this office before the date shown below.

FINAL DATE:-  22 January 2020”

1. Upon receiving this, Duncan James leapt into action and, for the first time, sent a letter to the respondent purporting to confirm the “agreement”:

“Our Accountants, Grahame Raftery & Co, have sent us a copy of your letter dated 12 January, 2010.

First and foremost, we accept your offer, and hereby agree to fully settle monies outstanding to you, as described in your letter, by your Final Date 22 January 2020.

Without detracting from our acceptance and agreement, as now concluded in the preceding paragraph, I refer (purely incidentally) to our letter to the ATO towards the end of December 2009, wherein we requested that the ATO consider reviewing our repayments down from $10K P.M. to $5 P.M. I based that revision on a spreadsheet that I prepared using a guesstimate interest rate of 1% per month and a start figure of $315K. Purely as a matter of interest, that sheet took us through to a total tidy-up in April 2018, so your 22 January 2020 fits well for us, even though the extra time might evapourate [sic] if interest rates increase, as the pudits [sic] say they will.

So as to save on interest, we will try to make payments more rapidly than the single end payment that you have required, and as we have accepted and agreed herein, but we don't want any such earlier payments to represent a change to the acceptance and agreement that we have now reached in para 2 hereof.

Please note that I will personally deal with you in relation of [sic] Office King Pty Ltd and we are instructing Grahame Raftery & Co to no longer represent us as our Tax Agent, with immediate effect.

Please send all future communication to me, at [email protected] . I do not check emails every day, so will email confirmation of receipt asap, when receiving anything from you by email.

Alternatively, would you please send ALL mailed correspondence to:

Office King Pty Ltd
PO Box 4484
Robina QLD 4230”

1. The entry of the date “22 January 2020” as the time by which payment had to be made in the Notice of Intended Legal Action was, not surprisingly, an error. It came about as a result of a mistake in entering the correct date: “22 January 2010”. To allow ten years in which to pay off a taxation debt, without any conditions such as making regular payments or lodging any returns, would strike many people as too generous to be true. It was. But Duncan James said that he did not think it was an error. He said he thought it was consistent with his proposal to pay off the debt at the rate of $5,000 a month. To accept his view would require a suspension of disbelief of substantial proportions.

1. Duncan James knew that he was required to give evidence. His presence at the hearing had been the subject of a direction by the Court. He must have realised that he would be questioned about his dealings with the ATO and the payments which the applicant had made, yet he was unable to provide anything but vague recollections of what had transpired in his dealings with the ATO and little if any evidence about the payments made by the applicant to the ATO.

1. An examination of his conduct and his state of mind discloses:

(a)        his action in immediately sending a letter purporting to accept the offer was inconsistent with his previous behaviour when dealing with the ATO;

(b)        his account of the late December conversation with the ATO employee was unclear, especially in circumstances where his business was experiencing some financial stress;

(c)        he knew the applicant was in default of the previous arrangement; and

(d)        he knew that in the preceding arrangements the applicant had been making regular payments.

1. I do not accept that Duncan James believed that the letter of 12 January was an offer from the respondent giving the applicant ten years in which to pay off the tax debt. He must have realised that the date for payment was a clerical error. It follows that his response to it was not even ingenuous – it was nothing more than a blatant attempt to take advantage of an obvious mistake.

1. In any case, the applicant was always aware of the true position as Graeme Raftery, its accountant, was informed by an employee of the ATO on 11 January that:

(a)        the applicant had an outstanding debt of $319,568.25; and

(b)        as the applicant had defaulted in a previous arrangement, full payment was required.

1. An attempt was made to demonstrate that the applicant had changed its position to its detriment as a result of the letter from the respondent and that the respondent was estopped from denying the 22 January 2020 payment date. It follows from what I have found that the applicant could not have relied on the erroneous date because it did not believe that date to be a true expression of the respondent’s intention. In any case, and notwithstanding the vagueness of Duncan James’ evidence, it was clear that any action taken by the applicant was at the insistence of Noel James and not because of any decision made by the applicant.

1. The applicant has failed to demonstrate that there is a reason to set aside the statutory demand. The application is dismissed.