A taxpayer has been successful in interlocutory proceedings before the Federal Court in preventing the Commissioner from taking recovery action in respect of a tax debt of some $11m. The Commissioner sought to institute the recovery action on the basis that the taxpayer had breached a term of a deed that the parties had entered into preventing the Commissioner from taking any recovery action until the trial of the substantive issue had been heard.

The deed required the taxpayer to provide security over property equal to the value of the debt or, if required, over additional property equal to half the value of the debt. The deed also provided that the Commissioner could not commence recovery action until he had given the taxpayer notice that recovery action would commence if a security issue was not remedied within 10 business days of the Commissioner giving notice of it. The breach alleged by the Commissioner was that:

  • the property over which security had been given was only valued at $2m when the taxpayer valued it at $11m and;
  • that the additional security then provided over 2 other properties was “flawed” in that, among other things, the company that owned the properties did not have the power to grant a mortgage over the properties.

In finding for the taxpayer, the Court first emphasised that in an interlocutory injunction, it was sufficient that a plaintiff show “a sufficient likelihood of success to justify preservation of the status quo pending the trial” and that this only required the plaintiff to make out a “prima-facie” case.

The Court then, in effect, found that the taxpayer had made the case that it was arguable that the Commissioner had not met the notice requirements of giving the taxpayer 10 days to remedy the valuation issue over the original security – and that this was sufficient in itself for the taxpayer to succeed in such interlocutory proceedings.

(Caratti v FCT [2016] FCA 754, Federal Court, Robertson J, 29 June 2016.)

[LTN 128, 6/7/16]