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.
