A taxpayer has been unsuccessful before the Qld District Court in a matter concerning alleged promissory notes to discharge a tax debt and claimed breaches of alleged contracts by the ATO.

The taxpayer commenced legal proceedings for money said to be owing to her pursuant to 2 contracts said to have arisen between herself and, essentially, the Deputy Commissioner of Taxation. The taxpayer claimed that she had delivered promissory notes to the Deputy Commissioner which were said to have discharged her tax liabilities and that the Deputy Commissioner had accepted to pay amounts to her for breaches of alleged contracts. The District Court noted that it was “in this, somewhat mysterious, way that the apparent tax debt owned by the [taxpayer was] converted into a much larger debt owed by the [Deputy Commissioner] to the [taxpayer] without any tax having been paid”. The District Court noted the taxpayer was represented by a “friend” who was not a legally qualified person. The amount in dispute totalled some $77,521.

The District Court did not accept that the unilateral delivery of a promissory note was a payment of a tax-related liability within the meaning of reg 18 of the Taxation Administration Regulations 1976. It further said the payment of an obligation by promissory note would normally be pursuant to an agreement of a contractual kind. It said there was nothing contractual about the relationship between the taxpayer and the ATO. Accordingly, the taxpayer’s statement of claim was struck out. The taxpayer’s application for default judgment was also dismissed. The taxpayer was also ordered to pay the Deputy Commissioner’s costs of the application, including reserved costs, on an indemnity basis.

(Woods v Australian Taxation Office & Ors [2016] QDC 198, Qld District Court, Kent DCJ, 10 August 2016.)

[LTN 158, 17/8/16]

Extract from Judgement – ‘Background’

[1] The plaintiff commenced proceedings, by a claim and statement of claim filed 18 May 2016, for money said to be due and owing to her pursuant to two contracts said to have arisen between herself and, essentially, the third defendant, together with interest thereon and costs. The circumstances under which these debts are said to arise on the plaintiff’s pleadings are, if not novel, certainly inventive. I pause to note that the claim and statement of claim were also filed with a document appointing Anthony William Evans as the plaintiff’s attorney for “the specific purpose of overseeing the matters pertaining to the attached current proceedings”. I will return to the topic of Mr Evans shortly.

[2] The statement of claim sets out the basis of the claim as follows. The pleading acknowledges, in paragraph 10, that the third defendant had forwarded to the plaintiff running balance account statements for her tax liabilities. These amount, on the third defendant’s case, to $77,521.21 and on the plaintiff’s case to somewhat less than that. The pleading sets out the plaintiff’s case that the balance of tax owing was dealt with by the plaintiff creating two promissory notes, which were delivered to the third defendant in November 2015 and were said to be for amounts that more than discharge her “former” liabilities. The pleading further alleged a contract had been created on 23 November 2015, whereby it was said that the third defendant had agreed (as a “defaulting party”) to accept the promissory notes and pay the plaintiff $216,000 for some unspecified breach of the alleged contract. The pleading also alleged a second contract arose at the same time as the second promissory note, on the same day, to similar effect, except that the award for “breach” of the contract was on this occasion $80,400.

[3] Although it is not made quite clear in respect of the first contract, in respect of the second contract it appears that the amount of the claim is calculated by way of multiplying the amount of the tax debt by four and imposing that amount as a penalty for some perceived breach of the alleged contract. It is in this, somewhat mysterious, way that the apparent tax debt owed by the plaintiff is converted into a much larger debt owed by the third defendant to the plaintiff without any tax having been paid.

[4] Not surprisingly, these ideas prompted some resistance by the defendants. The matter has been conducted essentially by the third defendant, the Deputy Commissioner of Taxation, as the responsible entity. On 15 June 2016, the third defendant filed the present application for orders that the pleading be struck out and for costs. The matter was originally to be heard on 21 June 2016, but was heard on 1 August 2016. In the meantime, the plaintiff made an application for default judgment on the basis that the defendants had not filed a defence, despite having been served with the application to strike out.

 Catchwords

PROFESSIONS AND TRADES – LAWYERS – UNQUALIFIED PERSONS AND DISQUALIFIED PRACTITIONERS – ACTING FOR PARTY – where the plaintiff sought leave to be represented by two persons who had no legal qualifications – where the plaintiff described those unqualified persons as her friends – where the plaintiff was present in court, but was too nervous to speak – where written submissions of the plaintiff had been prepared by one of the two unqualified persons – where the plaintiff could not offer any reason for not instructing a solicitor, in a matter that was complex and serious – whether leave should be granted to the two unqualified persons to assist as friends of the court
BANKING AND FINANCE – INSTRUMENTS – BILLS OF EXCHANGE – INCOMPLETE AND INCHOATE BILLS – where the plaintiff had an outstanding tax debt to the Australian Taxation Office – where the plaintiff made notations on documents sent to her by the Australian Taxation Office – whether the altered documents constituted an “inchoate instrument” under the Bills of Exchange Act 1909 (Cth)
BANKING AND FINANCE – INSTRUMENTS – PROMISSORY NOTES – DEFINITIONS – where the alleged promissory notes were said to be payable on demand, but also at a fixed future time – whether the alleged promissory notes were promissory notes as defined under the Bills of Exchange Act 1909 (Cth)
BANKING AND FINANCE – INSTRUMENTS – PROMISSORY NOTES – LIABILITIES OF PARTIES – where the plaintiff had an outstanding tax debt to the Australian Taxation Office – where the plaintiff attempted to discharge said liability by way of alleged promissory notes – whether the plaintiff could discharge her tax liability by way of promissory notes – whether Part II of the Bills of Exchange Act 1909 (Cth) applied to the promissory notes
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – FORMATION OF CONTRACTUAL RELATIONS – where the Australian Taxation Office sent a running balance account to the plaintiff – where the plaintiff marked the running balance account statement with the words, “acknowledged statement of the transaction giving rise to payment and acknowledged offer of contract between the parties disclosed” – whether there was an offer – whether there was acceptance – whether a contract had been formed between the plaintiff and the defendants
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – PLEADINGS – STRIKING OUT – DISCLOSING NO REASONABLE CAUSE OF ACTION OR DEFENCE – where the statement of claim plead the existence of a contract that did not exist – where the statement of claim disclosed no reasonable cause of action – whether the statement of claim should be struck out
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – INDEMNITY COSTS – where the plaintiff was put on notice as to the futility of its case, prior to issuing proceedings – where the plaintiff was not legally trained – whether the court should exercise its discretion to award indemnity costs

Extract from the Taxation Administration Regulations 1976

REGULATION 18   PAYMENT OF TAX-RELATED LIABILITIES

18(1)   A person who pays a tax-related liability must pay the liability in Australian currency.

18(2)  The person must pay the tax-related liability using a method approved by the Commissioner and in accordance with any instructions provided by the Commissioner.

18(3)   The person must pay the amount of the tax-related liability in a single payment unless the Commissioner agrees that the person may make more than 1 payment.

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Category: Tax Month - August 2016

Author: John Morgan

John Morgan is a tax specialist lawyer of more than three decades experience now practicing at the Victorian Bar - w: www.FJMtax.com e: f.john.morgan@vicbar.com.au