In a majority decision, the Full Federal Court dismissed the appeal of 2 corporate taxpayers to have statutory demands set aside.
The taxpayers carried on property development activities. One of the directors of the companies claimed he reached a “global deal” with the ATO to bring to an end debt recovery action against the companies if adequate security was provided. However, he said the ATO then sought demands that were contrary to this oral agreement. The ATO claimed they were consistent with subsequent written deeds, which had been breached.
At first instance, in MNWA Pty Ltd & Anor v DCT (No 2) [2015] FCA 1128, the Federal Court found there was no probative evidence to support the taxpayers’ allegation that the statutory demands were issued for any purpose other than to set in train winding-up proceedings against the companies. It further found that contrary to Mr C’s “subjective belief”, he and the ATO had not entered into a binding verbal agreement that differed from the terms of the deeds subsequently executed.
The majority found that no appellable error, at first instance, was discernible and that the primary judge correctly had regard to objective evidence, and that the balance of the evidence was supportive of the conclusion that the primary judge reached.
In particular, the majority found that the finding at first instance that a “global deal” had not been made between the parties was supported by the evidence, particularly in view of the subsequently executed deeds.
(MNWA Pty Ltd v DCT [2016] FCAFC 154, Full Federal Court, Majority: Farrell and Davies JJ; dissenting: Rares J, 16 November 2016).
[LTN 223, 17/11/16]
First instance decision of Griffiths J – ‘catchwords’
TAXATION – applications pursuant to s 459G(1) of the Corporations Act 2001 (Cth) to set aside statutory demands under s 459J(1)(b) – whether the defendant issued statutory demands for an improper purpose.
CONTRACTS – where the plaintiffs and defendant conducted negotiations concerning the plaintiffs’ tax liabilities – where the plaintiffs claim the defendant promised not to issue statutory demands until court proceedings concerning the plaintiffs’ tax liabilities had ended – where the plaintiffs and defendant subsequently entered into Deeds of Agreement – whether, during the negotiation, a binding oral agreement was entered into – whether, in issuing the statutory demands, the defendant unconscionably departed from the terms of the alleged binding agreement
Dissenting decision of Rare’s J that statutory demands be withdrawn – extract
- In my opinion, the Commissioner’s use of the statutory demands, in the context of the earlier circumstances in which the deeds came to be made and the securities provided, was capable of raising the issues that were express or necessarily implied in the supporting affidavits of Mr Caratti and Ms Bazzo to warrant the demands being set aside under s 459J(1)(b): Infratel 297 ALR at 377 [30]; Hopetoun 286 ALR at 776 [36]. The obvious question that the Commissioner’s decision to serve the demands raised is: what was the benefit in Gucce and Mammoth and their associates entering the three deeds and arranging extensive security so that they could pursue their challenges to existing assessments, if the next moment the Commissioner was free to initiate the summary process of seeking to wind them up on a new set of taxation liabilities? No obvious answer arises.
Majority decision of Farrell & Davies JJ – that demands not be set aside – extract
- We have had the benefit of reading the draft reasons for decision of Rares J. We agree with his Honour’s reasons and conclusion that leave to appeal from an order deciding an application under s 459G of the Corporations Act 2001 (Cth) (“the Act”) is required. However we respectfully disagree that the primary judge was wrong to conclude that the appellants had not established “some other reason” within the terms of s 459J(1)(b) of the Act for setting aside the creditor’s statutory demands.
…
- The submission also ignores the statutory scheme that applies to the collection and recovery of tax liabilities. Under that statutory scheme, a tax liability that is due and payable is a debt due to the Commonwealth and recoverable by the Commissioner if the liability remains unpaid after it has become due and payable: s 255–5 of Schedule 1 to the Taxation Administration Act. Thus, a tax debt that is due and payable is recoverable by the Commissioner by operation of law. The “significance of the taxation legislation” in this context is that the Commissioner is entitled by force of law to recover unpaid tax and “the use by the Commissioner of the statutory demand procedure in aid of a winding up application is in the course of recovery of the relevant indebtedness to the Commonwealth by a permissible legal avenue”: DCT v Broadbeach at [40]–[50], [58]. DCT v Broadbeach establishes that in considering whether there is “some other reason” within the terms of s 459J(1)(b) of the Act the “material considerations” which are to be taken into account will include the statutory scheme that applies to the collection and recovery of tax liabilities. Given the statutory scheme for collection and recovery of tax, an arguable basis for disputing the Commissioner’s right to take recovery action is insufficient to constitute “some other reason” within the terms of s 459J(1)(b) and does not support an exercise of power to set aside the statutory demands under that section.
- The primary judge was correct to reject the companies’ submission on the onus under s 459J(1)(b) of the Act.