Introduction

The High Court of Australia sitting as the Court of Disputed Returns in Re Culleton [No 2] [2017] HCA 4 has found that, by reason of s 44(ii) of the Commonwealth Constitution, Senator Culleton’s conviction for larceny disqualified him from being elected as a senator at the 2016 election notwithstanding that the conviction was later annulled.

Section 44(ii)

Section 44(ii) of the Constitution relevantly provides:

“Any person who:

…

(ii)        … has been convicted and is under sentence, or subject to be sentenced, for any offence punishable under the law of the Commonwealth or of a State by imprisonment for one year or longer …

shall be incapable of being chosen or of sitting as a senator …”.

Background

Prior to the 2016 election, Senator Culleton had been convicted, in his absence, in the Local Court of New South Wales, of the offence of larceny. He had then been liable to be sentenced to imprisonment for a maximum term of two years. On the same day that he was convicted, the Local Court issued a warrant for his arrest in order to have him brought before it for sentencing. Subsequently, Senator Culleton was nominated as a candidate for the 2016 election and, after the election, was noted as elected as a senator for Western Australia. When the warrant issued for his arrest was executed, the Local Court granted an annulment of the conviction under the Crimes (Appeal and Review) Act 2001 (NSW), dealt with the matter afresh, and found Senator Culleton guilty of the offence on his own plea, but dismissed the charge without proceeding to conviction. Senator Culleton was ordered to pay monetary compensation to the complainant.

Court’s decision

The matter was dealt with by a Full Court (Kiefel, Bell, Gageler, Keane and Nettle JJ). The decision was that, by reason of s 44(ii) of the Constitution, there was a vacancy in the representation of Western Australia in the Senate for the place for which Senator Culleton was returned and that the vacancy should be filled by a special count of the ballot papers, a single Justice making any directions necessary to give effect to the conduct of the special count.

The plurality

The key points made by the plurality (Kiefel, Bell, Gageler and Keane JJ) included the following. References to the cases have been omitted.

• The words “shall be incapable of being chosen” in s 44 of the Constitution referred to the process of being chosen, a process which operated from the date of nominations, being the date on which the electoral process began, until the return of the writs for the election, being the time at which the electoral process was complete (at [13]).
• The words “is under sentence, or subject to be sentenced” in s 44(ii) made it clear that the framers of the Constitution were concerned to ensure that not only should a person who had already been sentenced to a term of imprisonment of one year or longer be disqualified from being chosen or from sitting as a senator; so too should a person who was able to be so sentenced. The circumstance sought to be guarded against was that such a person might not be able to sit and should for that reason not be able to be chosen (at [22]).
• The relevant provisions of the Crimes (Appeal and Review) Act 2001 (NSW) indicated that a conviction was annulled only for the future and did not purport to operate retroactively to deny legal effect to a conviction from the time that it was recorded. Accordingly, at the date of the 2016 election, the conviction recorded against Senator Culleton was legally in effect and the later annulment did not alter this position because it did not purport retrospectively to treat the conviction as if it had never occurred (at [28]-[29]).
• In light of this finding in relation to the effect of the annulment, it was not necessary to deal with the question as to whether the mere fact of the conviction was sufficient to engage the disqualifying effect of s 44(ii) even if the conviction were to be nullified retrospectively (at [14]).
•  Although s 25(1)(a) of the Crimes (Sentencing Procedure) Act 1999 (NSW) prohibited the Local Court from imposing a sentence of imprisonment upon “an absent offender”, Senator Culleton was nevertheless “subject to be sentenced … for any offence punishable … by imprisonment for one year or longer ” at the time of the 2016 election. While he was not liable to be sentenced to imprisonment in his absence immediately upon the conviction being recorded, once the warrant issued on that day for his arrest, the processes of the law pursuant to which he could lawfully be sentenced to imprisonment were set in motion. If those processes took their course, he would be present when sentenced, and so could lawfully be sentenced to a term of imprisonment without offending s 25(1)(a) of the Crimes (Sentencing Procedure) Act (at [36]).

Accordingly, the plurality concluded at [4] that, both as a matter of fact and as a matter of law, Senator Culleton was a person who had been convicted and was subject to be sentenced for an offence punishable by imprisonment for one year or longer at the date of the 2016 election and that the subsequent annulment of the conviction had no effect on that state of affairs. Therefore, by reason of s 44(ii) of the Constitution, Senator Culleton was “incapable of being chosen” as a senator and there was a vacancy in the representation of Western Australia in the Senate for which Senator Culleton was returned.

Nettle J

Nettle J agreed with the plurality in the result but some of His Honour’s reasons differed from those of the plurality. The key points made by his Honour included the following:

• The better view was that s 44(ii) of the Constitution was directed to a conviction in fact regardless of whether it was subsequently annulled (at [57]).
• In any event, a conviction that was susceptible to annulment under the Crimes (Appeal and Review) Act 2001 (NSW) continued to have effect up to the date of annulment and so remained determinative of the convicted person’s convict status in relation to events occurring up to that point. Up to the point of its annulment, Senator Culleton’s conviction was voidable, not void and so remained a valid conviction determinative of his convict status for the purposes of s 44(ii). It followed that, at the time of his nomination, he was not capable of being chosen as a senator, notwithstanding the later annulment of his conviction (at [62]-[63]).
• Senator Culleton was “subject to be sentenced” at the date of nomination. Plainly, the purpose of s 44(ii) was to disqualify a person convicted of any offence for which the maximum penalty was a term of imprisonment of one year or more if the person either had been sentenced and was still to complete the sentence, and so was “under sentence”, or remained to be sentenced, and so was “subject to be sentenced” (at [66]).

The New South Wales Court of Appeal in Ligon 158 Pty Ltd v Huber [2016] NSWCA 330 has set out the principles relevant to determining whether a dispute asserted by a company served with a creditor’s statutory demand is a “genuine dispute” about the existence or amount of a debt for the purposes of s 459H(1)(a) of the Corporations Act 2001 (Cth).

Those principles, found at [8]-[11] of the judgment of Barrett AJA (with whom McColl and Meagher JJA agreed), can be summarised as follows. References to the cases have been omitted.

• A dispute was “genuine” if it was not “plainly vexatious or frivolous” or “may have some substance” or “involves a plausible contention requiring investigation”. The dispute had to be bona fide and be premised on sufficiently particularised grounds that were “real and not spurious, hypothetical, illusory or misconceived” and which demonstrated the “objective existence” and “prima facie plausibility” of the dispute.
• The test was governed by principles analogous to those which underpinned an application for an interlocutory injunction or summary judgment but the court had to guard against setting the threshold too low as that could defeat the legislative purpose of s 459H(1)(a).
• A company challenging a statutory demand on the genuine dispute ground was not faced with a difficult or demanding task. Once the company showed that even one issue had a sufficient degree of cogency to be arguable, a finding of genuine dispute would follow and the statutory demand would be set aside. A finding to the contrary could only be made if the company’s claims were so devoid of substance that no further investigation was warranted.
• The court’s function to merely determine the existence of a genuine dispute did not require or invite the court to weigh or assess the merits of the dispute but the court would not be exceeding its legitimate function by having regard to evidence relevant to whether the asserted dispute was genuine.
• Important points about the forensic approach to be adopted in s 459G proceedings included the following:
  • While there had to be evidence showing a serious question to be tried or an issue deserving of a hearing, the evidence could not and need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable.
  • The short time allowed by s 459G(2) for the preparation of the affidavit in support of the application for an order setting aside the demand militated against the presentation of the fullest and best evidence in some cases.
  • In determining whether there was evidence of a genuine dispute, the court was generally not concerned to engage in an enquiry as to the credit of the deponent of the supporting affidavit. However, the court was not required to accept uncritically every statement in the affidavit that was inconsistent with undisputed contemporary documents, was inherently improbable, did not have sufficient prima facie plausibility to merit further investigation or was an assertion of facts not supported by evidence.
  • Inconsistent contemporaneous documents would not necessarily be sufficient to defeat the company’s challenge to a demand even though they could create difficulties for the ultimate proof of the case put forward by the company if the dispute was litigated.
• The grounds on which the company disputed the debt had to appear from the supporting affidavit filed by it within the period allowed by s 459G(2) (the so-called ‘Graywinter principle’). However, the issue for the court was not whether the company would succeed on those grounds in defending a debt recovery action brought against it by the creditor. Rather, the court had to determine whether the grounds of dispute delineated by the affidavit were grounds which, when viewed in the whole of the circumstances emerging from the evidence, indicated a plausible defence propounded in good faith and not one merely constructed in response to the pressure represented by the statutory demand. Credibility issues would generally be confined to the question whether the asserted grounds were of that quality, as distinct from questions going to the ultimate merits of the defence itself. For this reason, cross-examination of deponents was rare in these kinds of proceedings.
• The court needed to exercise restraint in considering the ultimate question of the indebtedness of the company. Except in a case in which it was patently obvious that there was no debt, judges, whether at first instance or on appeal, should generally be careful to perform the task of determining whether there was a genuine dispute without expressing a view on the ultimate question. Otherwise, things could be said which would embarrass the judge before whom the ultimate question came.

In the case before the Court of Appeal, the debt claimed in the statutory demand was a payment by way of a loan from the creditor to the company which the company had failed to repay. The company, however, maintained that the payment was not a loan but a non-refundable contribution towards certain legal expenses incurred by the company. The trial judge had considered this ground of dispute to be a recent invention which deprived the dispute of the “genuine” quality and had dismissed the company’s application to set aside the demand. The issue then on appeal was whether there was a genuine dispute or a defence merely constructed in response to the claim advanced through the statutory demand. Having regard to the evidence, the Court of Appeal concluded that the proposition that the creditor had made a non-refundable contribution as distinct from a loan was not so devoid of plausibility or was not so lacking in substance that the case could be dismissed without further examination. Accordingly, the appeal was allowed and the statutory demand was set aside.

Introduction

The Full Court of the Federal Court of Australia in MNWA Pty Ltd v Deputy Commissioner of Taxation [2016] FCAFC 154 has provided clarification on the standard of proof which rests on a company seeking to have the Court set aside a creditor’s statutory demand for “some other reason” under s 459J(1)(b) of the Corporations Act 2001 (Cth) (“Act”).

Background

The Deputy Commissioner of Taxation (“Commissioner”) had served a statutory demand on one company for the payment of an assessed amount of goods and services tax, and a statutory demand on another company for payment of an assessed amount of income tax. Each of the companies applied to the Federal Court of Australia to have the statutory demands set aside for “some other reason” within the terms of s 459J(1)(b) of the Act.

The companies alleged that a binding oral agreement (described as a “global deal”) had been reached between the companies and the Commissioner in which the Commissioner had promised he would not take recovery action in respect of certain tax debts while the companies pursued their objection and appeal rights under Pt IVC of the Taxation Administration Act 1953 (Cth). It was claimed that the serving of the statutory demands was contrary to the global deal, was unconscionable and was an abuse of process because service was for an improper purpose.

Decision at first instance: MNWA Pty Ltd v Deputy Commissioner of Taxation (No 2) [2015] FCA 1128; (2015) 109 ACSR 265

At first instance, the companies submitted that the onus that they carried to have the statutory demands set aside under s 459J(1)(b) of the Act was the same as that carried by a person who relied on s 459H(1)(a) of the Act. Section 459H(1)(a) permits an application to set aside a statutory demand where there is a “genuine dispute” about the existence or amount of a debt to which the demand relates. Therefore, according to the companies, to exercise its discretion to set aside the statutory demands under s 459J(1)(b), the Court only had to be satisfied that it was reasonable and arguable or plausible that the global deal had been made and covered the tax debts to which the statutory demands related.

In support of this submission, the companies relied on NT Resorts Pty Ltd v Deputy Commissioner of Taxation [1998] FCA 255; (1998) 153 ALR 359 (“NT Resorts”) and a line of cases that had followed that decision. NT Resorts involved an application by a taxpayer to set aside a statutory demand on the ground that the tax debts were not due and payable when the demand was served because payment of the tax debt had been extended by agreement with the Commissioner. In that case, Finkelstein J had observed that the taxpayer’s application could fall within either s 459H(1)(a) or s 459J(1)(b) and that the standard of proof would be the same in either case, that is, if the application was made under s 459J(1)(b) the Court would need to be satisfied that there was a genuine dispute about whether the debt to which the demand related was due and payable before it would set aside the demand.

The trial judge, however, rejected the companies’ submission on the onus under s 459J(1)(b), saying that Finkelstein J’s obiter observations had been directed to a situation where a claim that a debt was not due and payable had arisen for consideration under s 459J(1)(b), and did not apply where the claim of “some other reason” concerned not whether a debt was due and payable, but rather whether the power to issue a statutory demand had been abused or used for some collateral purpose. In the latter case, the trial judge said, the onus was to establish on the balance of probabilities the alleged abuse or collateral purpose and was an onus akin to the onus which arose under s 459J(1)(a) where it was alleged that there was a defect in the statutory demand.

In the result, the trial judge was not satisfied that the evidence established on the balance of probabilities that the parties had made the global deal that covered the tax debts to which the statutory demands related and rejected the claims that the Commissioner had engaged in unconscionable conduct by serving the demands and that the statutory demands had been served for an improper purpose.

Full Court decision: MNWA Pty Ltd v Deputy Commissioner of Taxation [2016] FCAFC 154

The companies appealed to the Full Federal Court which, by majority (Farrell and Davies JJ, Rares J dissenting) dismissed the appeal.

On the standard of proof issue (see [183]-[193]), the companies submitted that the trial judge had mischaracterised or failed to deal with the argument which had been advanced by the companies, namely, that the tax debts to which the statutory demands related were not “immediately payable” at the time the demands were served.

The majority, however, said that this was not the argument that had been advanced by the companies at trial. Rather, the companies had argued at trial that the Commissioner had promised not to take action to recover the tax debts and that the service of the statutory demands had been contrary to this promise, involved unconscionable conduct and was otherwise an abuse of process. That argument, the majority said, had been dealt with, and rejected by, the trial judge when the trial judge had found that the obiter observations of Finkelstein J in NT Resorts applied to a claim that a debt was not due and payable at the time the demand was served, and did not apply to a claim that the conduct of the creditor in issuing the statutory demand was unconscionable or an abuse of process.

The majority said, moreover, that had the companies argued that the tax debts were not “immediately payable”, that argument would have failed because the scheme of the taxation legislation would have precluded it. The majority referred to the High Court’s decision in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 (“Broadbeach”) and explained that the tax debts were assessed amounts of GST and income tax which were due and payable at the time of service of the demands by force of the relevant tax legislation. Under the statutory scheme for the collection and recovery of tax debts, absent showing that the Commissioner had exercised his statutory power to extend the time for payment of the tax debts (which the companies had not contended at trial that he had done), the statutory demands could not be set aside under s 459H(1) on the basis of a “genuine dispute” about the existence or amount of the debts nor under s 459J(1)(b) on the basis of a “genuine dispute” about whether the debts were due and payable when the demands were served.

The majority went on to say that, as NT Resorts had been decided before Broadbeach, NT Resorts could no longer be relied upon as authority that a creditor’s statutory demand for the payment of an assessed tax liability could be set aside for “some other reason” under s 459J(1)(b) on the basis of some genuine dispute concerning whether the tax liability was “due and payable”.

After considering a further argument by the companies, the majority concluded that the trial judge was correct to reject the companies’ submission on the onus under s 459J(1)(b) of the Act.