The Supreme Court of Queensland has held that personal guarantees given by a husband and wife, in relation to an agreement they entered into, with the Commissioner, were binding on the guarantors. They guaranteed that their company would pay its tax debt, by way of instalments. The company defaulted and the guarantors were liable for a judgment amount of $1.2m.

In arriving at its decision, the Court dismissed the taxpayers’ arguments that the Commissioner did not have the power to enter into such a “guarantee” agreement and that, if he did, it had been entered into by a person without the authority to do so.

  • The Court found that the Commissioner’s power to enter such an agreement was conferred by s3A of the TAA 1953  which provides that the Commissioner has the “general administration of this Act” and that there was no reason why the power in s3A should not be construed as operating broadly enough to authorise the Commissioner to enter into such a guarantee contract with a third party.
  • The Court also noted that the guarantee agreement did not “contradict the liability of a person under the taxing statute for an amount provided by the statute”.
  • It also found that, contrary to the taxpayer’s claims, the Commissioner was not restricted to relying on the “garnishee” power in s260-5 for seeking payments of tax debts from third parties.
  • At the same time, the Court found that although the Tax Officer, who entered the agreement, did not have the authority to do so (as the instrument of authorisation provided for the delegation of all powers “except” those in s3A of the TAA 1953), nevertheless, the agreement had been subsequently ratified by the Commissioner, by the act of seeking to enforce it by bringing the current action against the taxpayers. Specifically, the Court found that there was no reason to doubt that the Commissioner ratified the contract, according to usual principles of agency, by being substituted as “plaintiff” and by pursuing the claim in the present proceeding.

Finally the Court found, in relation to the Commissioner’s actions in also issuing a s260-5 garnishee notice to a third party debtor of the taxpayer, that there was no implied term in the guarantee agreement that the Commissioner would not “hinder, prevent or impede” the performance of the taxpayers obligations under the guarantee agreement by, for example, pursuing the tax debt owed to him in this manner. Accordingly, the taxpayer could not claim that the Commissioner had breached the guarantee agreement by such action.

(FCT v Croft & Anor [2016] QSC 190, Supreme Court of Queensland, Jackson J, 26 August 2016.)

[LTN 166, 29/8/16]

[FJM Note: without having read this case in any detail, it does appear to me that, the guarantors may have a basis for appeal, if the Commissioner’s 3rd party garnishee collection action, did cause the company to default on its tax instalments agreement.]

Catchwords in Judgement

TAXES AND DUTIES – ADMINISTRATION OF FEDERAL TAX LEGISLATION – COLLECTION AND RECOVERY OF TAX – GENERALLY – where a company agreed to repay a tax debt to the plaintiff by a series of instalment payments – where the defendants agreed to guarantee payment of the debt, and to pay the outstanding balance on demand if the company defaulted on any instalment payment – whether s 3A of the Taxation Administration Act 1953 (Cth) authorised the plaintiff to enter into the contract of guarantee – whether such a power was impliedly excluded by the plaintiff’s other statutory powers to issue a garnishee notice to a third party debtor of the taxpayer or to make an arrangement with a taxpayer to permit that taxpayer to pay by instalments under an arrangement.
CONTRACTS – PARTICULAR PARTIES – PRINCIPAL AND AGENT – RATIFICATION – where the instruments delegating power to the employees who entered the relevant contracts on behalf of the plaintiff expressly excluded the plaintiff’s power under s 3A – whether the employees were authorised to contract on the plaintiff’s behalf – whether the plaintiff ratified the relevant contracts by being substituted as a plaintiff to the proceeding.
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – GENERALLY – where the plaintiff had agreed to refrain from taking further steps to recover the debt on the basis set out in the agreement – where in the event of default the plaintiff was entitled to immediate payment of the outstanding balance and to enforce all rights against the company and defendants – where the company defaulted by failing to pay an instalment – where the plaintiff issued a garnishee notice to a third party debtor of the company and received payment under the notice – whether it was an implied term of the contract that the plaintiff would not hinder, prevent, impede or defeat the defendants’ performance of their obligations, including that the plaintiff would not do anything to interfere with the company’s ability to earn commission from the third party debtor – whether any such implied term had been breached by the plaintiff exercising the statutory power to issue the garnishee notice