Supreme Court New South Wales Medium Neutral Citation: In the matter of Priority Matters Pty Ltd [2022] NSWSC 3 Hearing dates: 30 August 2021 Decision date: 09 February 2022 Jurisdiction: Equity Before: Rees J Decision: Vary demand from $4.9 million to $4.67 million, plaintiff to pay costs. Catchwords: CORPORATIONS – winding up – company liable to pay tax estimates of $4.9 million – company fails to revoke estimate – Commissioner serves statutory demand – whether application to set aside statutory demand are proceedings which "relate to the recovery of the unpaid amount of the estimate" under item 2, s 268-40, sch 1, Taxation Administration Act at [29]-[50] – Transtar followed – whether "other reason why the demand should be set aside" at [52]-[55]. Legislation Cited: Bankruptcy Act 1966 (Cth) Corporations Act 2001 (Cth) Income Tax Assessment Act 1936 (Cth) Taxation Administration Act 1953 (Cth) Cases Cited: Australia DIS Pty Ltd v Deputy Commissioner of Taxation [2012] VSC 331; (2012) 90 ATR 128 Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 CLK Kitchens & Joinery Pty Ltd v Commissioner of Taxation [2019] FCA 1086 Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; (2017) 125 ACSR 212 CVC Investments Pty Ltd v P&T Aviation Pty Ltd (1989) 18 NSWLR 295; 7 ACLC 1218 Deputy Commission of Taxation v Epov [2008] NSWSC 1085 Deputy Commissioner of Taxation v Armstrong Scalisi Holdings Pty Ltd [2019] NSWSC 129; (2019) 343 FLR 374 Deputy Commissioner of Taxation v Broadbeach Properties (2008) 237 CLR 473; [2008] HCA 41 Deputy Commissioner of Taxation v Karas (2013) 278 FLR 402; [2013] VSC 410 Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 Equipped Constructions Pty Ltd v Form Architects Pty Ltd [2006] NSWSC 500 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60 In the matter of Essential Media and Entertainment Pty Ltd [2020] NSWSC 990 In the matter of Gorji Property Investment Pty Ltd [2018] NSWSC 1671 In the matter of Granite Power Ltd [2019] NSWSC 1491 In the matter of Linton Developments (Qld) Pty Ltd [2017] NSWSC 336 In the matter of Litigation Insurance Pty Ltd [2017] NSWSC 334 In the matter of Mega Engineering Australia Pty Ltd (1997) 24 ACSR 683 In the matter of Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 In the matter of Universal Property Group Pty Ltd [2019] NSWSC 796 In the matter of Zarzar Pty Ltd [2017] NSWSC 93 Intergraph Public Safety Pty Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523; 14 ACLC 1234 Lee v Deputy Commissioner of Taxation (2020) 102 NSWLR 825; [2020] NSWCA 95 Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd (1996) 19 ACSR 411 Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 Repforce International Pty Ltd v Master Lease Properties Pty Ltd [2003] NSWSC 970 Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393 TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 Transtar Linehaul Pty Ltd v Deputy Commissioner of Taxation (2011) 196 FCR 271; [2011] FCA 856 Vickery v The Owners - Strata Plan No 80412 (2020) 103 NSWLR 352; [2020] NSWCA 284 Texts Cited: Explanatory Memorandum to the Insolvency (Tax Priorities) Legislation Amendment Bill 1993 Explanatory Memorandum to the Tax Laws Amendment (Transfer of Provisions) Bill 2010 R P Austin and A J Black, Annotations to the Corporations Act (2010, LexisNexis) Category: Principal judgment Parties: Priority Matters Pty Ltd (Plaintiff) Deputy Commissioner of Taxation (Defendant) Representation: Counsel: T Cleary (Plaintiff) K Josifoski (Defendant) Solicitors: Gibson Howlin Lawyers (Plaintiff) Craddock Murray Neumann (Defendant) File Number(s): 2021/87946 Judgment 1. HER HONOUR: This is an application to set aside a statutory demand under section 459G of the Corporations Act 2001 (Cth) on the basis of a genuine dispute as to the existence of a debt. The demand was issued by the Deputy Commissioner of Taxation to the plaintiff, Priority Matters Pty Ltd, and seeks payment of some $4.9 million, largely comprising estimates due under Division 268 in Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA) together with penalties and interest. 2. Priority Matters contends that the genuine dispute arises where, by force of law, the estimates have been revoked by the filing an affidavit in these proceedings, or there is a genuine dispute by reason of that filing. The plaintiff accepted that whether reliance on the affidavit for the effect contended was available turned on whether these proceedings "relate to the recovery of the unpaid amount of the estimate" within the meaning of item 2, section 268-40(1), TAA. If I was against the plaintiff on this question, then the plaintiff contended that the demand should be set aside for "some other reason" under section 459J(1)(b) of the Corporations Act. FACTS 1. Priority Matters was incorporated in 1999. The company is one of a number of companies, including Worldwide Speciality Property Services Pty Ltd (formerly known as Silverbrook Research Pty Ltd), of which Janette Lee and her husband, Kia Silverbrook, were directors (Ms Lee is now the sole director of Priority Matters). Mr Silverbrook is an inventor who has registered thousands of patents. According to Ms Lee, the "companies together performed various functions which are interrelated and intended to operate a business of creating, developing and commercialising inventions." Priority Matters was used as a vehicle to maintain and manage the patents which were registered to various entities, including Silverbrook Research and Mr Silverbrook. As there were more than 10,000 patents to maintain, it was convenient to have a single entity as the point of contact for all patents. 2. Ms Lee said that the company did not pay wages to any person from 1 July 2009 to 30 June 2015, due to a deterioration in the finances of the companies caused by adverse litigation results and a decline in cashflow. Ms Lee said the company did not trade and did not generate any revenue. Priority Matters did not provide goods or services to external clients and was not registered for goods and services tax (GST). At various times, the company did not even maintain a bank account. As Ms Lee understood it, the company was not required to be registered for GST, nor to comply with reporting requirements for GST, nor to withhold Pay as You Go (PAYG) from wages as no wages were in fact paid. Ms Lee understood that the company was not obliged to lodge business activity statements (BAS) or report GST or PAYG, "There was simply nothing to report." 3. On 6 August 2015, the Commissioner served a Notice of Estimate of Liability for PAYG withholding amounts. Although Ms Lee said Priority Matters did not receive the Notice, it was accepted that the Notice was properly served. Priority Matters became liable to pay the estimate but did not do so. Almost six years later, on 9 March 2021, the Commissioner served the statutory demand. On 29 March 2021, Priority Matters filed an originating process seeking to set aside the demand or vary the amount of the demand. Accompanying the application was an affidavit affirmed by Ms Lee. Priority Matters relies on this affidavit to revoke the estimate in accordance with item 2, section 268-40(1). 4. On 18 May 2021, the Commissioner issued a certificate under section 8AAZJ of the TAA certifying that, as at 18 May 2021, the Running Balance Account (RBA) deficit debt, being a balance in favour of the Commissioner based on primary tax debts currently payable and payments made in respect of current or anticipated primary tax debts and credits to which the taxpayer is entitled under taxation law, is $4,945,711.95: section 8AAZA, TAA. The Commissioner relies on this certificate to establish that the penalties and the general interest charges are owing. SETTING ASIDE A DEMAND 1. The principles governing the Court's power to set aside a statutory demand based on a genuine dispute about the existence or amount of a debt are well established. Drawing on my judgment in In the matter of Essential Media and Entertainment Pty Ltd [2020] NSWSC 990 at [77] to [81], the threshold to establish a genuine dispute about the existence of a debt is a relatively low one. Black J conveyed the principles in In the matter of Gorji Property Investment Pty Ltd [2018] NSWSC 1671 at [14]: … In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452 at 464, the Full Court of the Federal Court held that a "genuine dispute" must be bona fide and truly exist in fact, and the ground for that dispute must be real and not spurious, hypothetical, illusory or misconceived. In Panel Tech Industries (Aust) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18], Barrett J (as his Honour then was) formulated that proposition as follows, in a proposition applied in subsequent cases: "Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger." 1. In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, the Court of Appeal (Beazley P, Meagher and Gleeson JJA) said in the context of an offsetting claim, at [30]: It is settled law that s 459H requires the Court to be satisfied that there is a "serious question to be tried": see Scanhill v Century 21 Australasia [Pty Ltd (1993) 47 FCR 451] at 467, or "an issue deserving of a hearing" as to whether the company has such a claim against the creditor: see Chase Manhattan Bank Australia Limited v Oscty Pty Limited [1995] FCA 1208; 17 ACSR 128 at [42] per Lindgren J; Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; 84 FCR 454 per Emmett J (as his Honour then was). The claim must be made in good faith: Macleay Nominees v Belle Property East Pty Ltd [[2001] NSWSC 743]. In that case, Palmer J observed, at [18], that good faith, in this context, meant that the offsetting claim was arguable on the basis of facts that were asserted "with sufficient particularity to enable the Court to determine that the claim is not fanciful". Their Honours make it clear that a similar standard of proof is required whether an offsetting claim or a genuine dispute is alleged. 1. It is not for the Court to engage in an assessment of a deponent's credit on an application such as this: Britten-Norman at [46]. What is called for is an assessment of the kind described by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (approved in Britten-Norman at [46]) (citations omitted): This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit "however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be" not having "sufficient prima facie plausibility to merit further investigation as to [its] truth", or "a patently feeble legal argument or an assertion of facts unsupported by evidence". 1. In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67, Dodds-Streeton JA, with whom Neave and Kellam JJA agreed, put the test in the following terms, at [71]: As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. … 1. Often cited is the judgment of Thomas J in In the matter of Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605, which provides useful guidance: It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another. The essential task is relatively simple — to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it). 1. Drawing on my judgment in In the matter of Granite Power Ltd [2019] NSWSC 1491 at [31]-[32], where the dispute relied upon to set aside a statutory demand is the meaning of the contract, determination of the meaning may be appropriate if a "patently feeble legal argument" is put forward: In the matter of Universal Property Group Pty Ltd [2019] NSWSC 796 at [15]. However, as Barrett AJA (with whom Gleeson and White JJA agreed) cautioned in Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; (2017) 125 ACSR 212 at [26], "where the question of construction has any element of rational controversy to it, the Court must exercise particular restraint." Barrett AJA adopted the statement of principle by Gleeson JA in In the matter of Litigation Insurance Pty Ltd [2017] NSWSC 334 at [31]: The important points to be derived from the authorities are as follows. First, the court dealing with a s 459G application is not compelled to determine questions of construction of documents. Second, s 459G proceedings are not ordinarily the occasion for the court to construe a contract where there are competing views about its meaning. Third, the cases in which it will be appropriate for the court to entertain a construction argument on a s 459G application are likely to be few in number. Fourth, the court's state of mind concerning the existence of a genuine dispute may range from a clear conviction that the debt does not exist to an opinion that the genuine dispute hurdle has only just been cleared. See also Gleeson JA in In the matter of Linton Developments (Qld) Pty Ltd [2017] NSWSC 336 at [32]. 1. Thus, where there are clearly arguable alternatives as to the meaning of a term and related questions of construction, this of itself gives rise to a genuine dispute within section 459H(1)(a) and no attempt should be made to determine the question in an application to set aside a statutory demand: Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 at [47] per Barrett J. More recently in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60, White JA held at [90]: It is usually inappropriate on an application to set aside a statutory demand that the court attempt to decide competing contentions as to contractual interpretation, partly because to do so might embarrass a judge before whom that issue arises and fundamentally because if the disputed question of contractual interpretation is arguable there will be a genuine dispute as to the existence of the debt, albeit one that does not depend upon a disputed matter of fact. But where the legal argument propounded in support of a particular construction is "patently feeble" (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (McLelland CJ in Eq), or where it is "as plain as a pikestaff" that it has no basis (Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; 19 ACLC 1270 at [41]) then there will be no genuine dispute (Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; 125 ACSR 212 at [26]-[29] …). 1. The same applies where the resolution of a dispute turns on questions of statutory interpretation: In the matter of Mega Engineering Australia Pty Ltd (1997) 24 ACSR 683 at 692 and 694 per Shepherdson J. THE ESTIMATES REGIME 1. The estimates regime was first introduced in 1993 as Divisions 8 and 10 of Part VI of the Income Tax Assessment Act 1936 (Cth). The current provisions – Division 268 of Schedule 1 to the TAA – are a "rewrite [which] reproduces the effect of Divisions 8 and 10 of Part VI": Explanatory Memorandum to the Tax Laws Amendment (Transfer of Provisions) Bill 2010 at [2.11]. As such, the explanatory memorandum for 1993 legislation remains relevant to understanding the legislative purpose for the current legislation; the explanatory memorandum for the 2010 "rewrite" referred the reader to the 1993 explanatory memorandum and said nothing further on the subject: at [2.9]-[2.11]. Thus, in Transtar Linehaul Pty Ltd v Deputy Commissioner of Taxation (2011) 196 FCR 271; [2011] FCA 856 and Lee, the Courts referred to the 1993 explanatory memorandum when construing the current provisions: Transtar at [25]; Lee at [57]. 2. That said, the "rewrite" is extensive such that I have found the 1993 explanatory memorandum to be of limited assistance in construing particular words and phrases in the current legislation cf Vickery v The Owners - Strata Plan No 80412 (2020) 103 NSWLR 352; [2020] NSWCA 284 at [47]-[52] per Basten JA (White JA relevantly agreeing at [164] and [170]). In particular, section 268-40 in Division 268 is an amalgam of former sections 222AGC, 222AGD, 222AHC, 222AHD, 222AIB and 222AIC. 3. According to the extrinsic material, the estimates regime enables the Commissioner to recover certain tax debts earlier and more effectively by empowering the Commissioner to initiate recovery action for an unremitted amount on the basis of an estimate of that amount: Explanatory Memorandum to the Insolvency (Tax Priorities) Legislation Amendment Bill 1993, page 1. Before the estimates regime, the Commissioner was required to establish the precise amount of the unremitted amount before taking legal action, which often frustrated the efficient and timely recovery of unremitted deductions due to the delay between non-remittance and ascertainment of the unpaid amount. The estimates regime sought to overcome these difficulties albeit, "As the Commissioner is only interested in collecting the actual unremitted amounts, a person will be given an opportunity to inform the Commissioner of the actual amounts deducted": 1993 explanatory memorandum at pages 19-20. Further, "The prime objective of the amendments involving the estimation of unremitted amounts is to enable the Commissioner to recover the actual amount which was deducted and not remitted": at page 26. (Emphasis in original.) 4. Division 268 of Schedule 1 to the TAA, "Estimates", enables the Commissioner to make an estimate of PAYG withholding amounts not paid as required and to recover the amount of the estimate, whilst also providing a mechanism for the taxpayer to "ensure that the Commissioner does not require you to pay more than the relevant unpaid amounts": section 268-1. The object of the Division is to enable the Commissioner "to take prompt and effective action to recover" such amounts: section 268-5. 5. Section 268-10(1) empowers the Commissioner to estimate the unpaid and overdue amount of PAYG withholding (the underlying liability). The amount of the estimate must be what the Commissioner thinks is reasonable (section 268-10(2)) having regard to anything the Commissioner thinks relevant: section 268-10(3). The taxpayer's liability to pay the amount of the estimate is separate and distinct from the underlying liability: section 268-20. As such, where the Commissioner has made an estimate, the Commissioner may take proceedings to recover the unpaid amount of the estimate or the unpaid amount of the underlying liability or both: example in notes to section 268-20(2). 6. By section 268-15(1), the Commissioner must give written notice of the estimate to the taxpayer. The notice is taken to be given when the Commissioner leaves or posts it: section 268-15(4). A person must pay the estimate if the Commissioner gives such notice; the amount is due and payable when the Commissioner gives the notice: section 268-20(1). Section 268-25 provides: Accuracy of estimate irrelevant to liability to pay You are liable to pay the unpaid amount of the estimate even if: (a) the underlying liability never existed or has been discharged in full; or (b) the unpaid amount of the underlying liability is less than the unpaid amount of the estimate. Note 1: 268‑40 revokes the estimate if you give the Commissioner a statutory declaration, or file an affidavit, to the effect that the underlying liability never existed. Note 2: Subdivision 268‑D provides ways in which you can challenge the estimate or its amount. 1. As explained by Payne JA (with whom McCallum JA and Simpson AJA agreed) in Lee v Deputy Commissioner of Taxation (2020) 102 NSWLR 825; [2020] NSWCA 95 – a case which concerned Ms Lee and Mr Silverbrook's liability under director penalty notices issued by the Commissioner in respect of Worldwide Speciality Property Services – "The clear legislative intent is that the liability to pay the amount of the estimate should be separate to the liability to pay the PAYG amount actually withheld": at [56]. Further, "the liability to pay the estimate exists, even if the estimate is inaccurate or erroneous. Proof of the true extent of an entity's noncompliance with its withholding obligations is not a prerequisite to the Commissioner making a valid estimate": at [66]. 2. Subdivision 268-D, "Reducing and revoking estimates", sets out the means by which the estimate may be changed, either by the Commissioner or the taxpayer. As to how the taxpayer may reduce or revoke an estimate, section 268-40 provides (noting that the plaintiff relies, in particular, on item 2, whilst the Commissioner points to item 3): (emphasis added) 268-40 How estimate may be reduced or revoked—statutory declaration or affidavit Scope (1) This section applies as set out in the following table: Statutory declaration or affidavit Item This section applies if ... and ... within ... 1 the Commissioner gives you notice of the estimate you give the Commissioner a statutory declaration for the purposes of this section (a) 7 days after the Commissioner gives you the notice; or (b) a longer period allowed by the Commissioner. you: (a) 14 days after you first take a procedural step as a party to the proceedings; or 2 you are a party to proceedings before a court that relate to the recovery of the unpaid amount of the estimate (a) file an affidavit for the purposes of this section; and (b) a longer period allowed by the court. (b) serve a copy on the Commissioner (a) the estimate is of the unpaid amount of a liability of a company; and the company: (a) 14 days after notice of the application was served on the company; or 3 (b) the Commissioner serves on the company a statutory demand relating to the company's liability to pay the unpaid amount of the estimate; and (a) files an affidavit for the purposes of this section; and (b) a longer period allowed by the court. (c) an application is made to a court under section 234, 459P, 462 or 464 of the Corporations Act 2001 for the company to be wound up (b) serves a copy on the applicant Example: For the purposes of item 2 of the table, taking a procedural step as a party to proceedings includes entering an appearance, filing a notice of intention to defend, or applying to set aside judgment entered in default of appearance. … Revocation (4) The estimate is revoked if the statutory declaration is to the effect, or the affidavit verifies facts sufficient to prove, that the underlying liability never existed. 1. Section 268-90 prescribes the requirements for the statutory declaration and affidavit. Relevantly, sub-section (2) provides: Content (2) In a case covered by paragraph 268-10(1)(a) (estimate of liability under requirement to pay to the Commissioner amounts you have withheld under the Pay as you go withholding rules), the statutory declaration or affidavit must verify the following facts: (a) whichever of the following are applicable: (i) the sum of all amounts you withheld under Division 12 during the relevant period, or the fact that you did not withhold any such amounts during the period; (ii) the sum of all amounts you were required to pay under Division 13 (Alienated personal services payments) during the relevant period, or the fact that you were not required to pay any such amounts during the period; (iii) the sum of all amounts you were required to pay under Division 14 (non-cash benefits and accruing gains) during the relevant period, or the fact that you were not required to pay any such amounts during the period; (b) what has been done to comply with Division 16 (Payer's obligations and rights) in relation to the amounts referred to in paragraph (a). 1. As explained in Lee, "The essential purpose of the estimate regime is to require either a company or its directors to provide information about the correct amounts actually withheld to the Commissioner promptly, or to verify facts from which it could be concluded that the company did not fail to comply with its obligations to remit amounts withheld under Div 12": at [66]. 2. Once the taxpayer gives the Commissioner a statutory declaration or affidavit which complies with the requirements of section 268-90, the revocation of the estimate under section 268-40(4) is unilateral and does not require any action or decision on part of the Commissioner; "the view adopted by the recipient of the statutory declaration or affidavit is irrelevant to its actual effect": CLK Kitchens & Joinery Pty Ltd v Commissioner of Taxation [2019] FCA 1086 at [166], [208] per Derrington J. 3. If the estimate is revoked, the estimate is taken never to have been made: section 268-55(3). Consistently with this, section 268-65 deals with the specific consequences of revocation of an estimate where a statutory demand has been issued: 268-65 Consequences of reduction or revocation – statutory demand changed or set aside Scope (1) This section applies if: (a) the estimate is of the unpaid amount of a liability of a company; and (b) the Commissioner has served a statutory demand on the company relating to the company's liability to pay the unpaid amount of the estimate; and (c) the amount of the estimate is later reduced, or the estimate is revoked. Statutory demand changed (2) The statutory demand is changed accordingly. (3) The statutory demand is taken to have had effect (as so changed) from the time the Commissioner served it on the company. Statutory demand set aside (4) The statutory demand is set aside if subsection (2) reduces the amount of the debt (or the total of the amounts of the debts) below the statutory minimum (within the meaning of the Corporations Act 2001). 1. Revocation of the estimate does not affect the Commissioner's rights or remedies in relation to the underlying liability: section 268-70. As Payne JA explained in Lee at [57]-[58]: (emphasis added) 57 These provisions are designed to give effect to the "efficient and timely recovery of the unremitted deductions", as stated in the Explanatory Memorandum to the Insolvency (Tax Priorities) Legislation Amendment Bill 1993 at p 19, by making those responsible for withholding and paying PAYG amounts liable for the full amount of the estimate, regardless of the existence of any underlying liability in fact, subject always to the opportunity to "inform the Commissioner of the actual amounts deducted" (at p 20) by statutory declaration or affidavit, by which means the liability to pay can be reduced or eliminated. 58 Where the entity in receipt of an estimate does not take advantage of the opportunity to "inform the Commissioner of the actual amounts deducted" the entity is liable for the full amount of the estimate, regardless of the actual liability, if any, to pay the PAYG amounts to the Commissioner. In recovering the amount of the Notice of Estimate from the entity served with the Notice, the Commissioner does not need to prove the extent of the underlying liability to pay PAYG amounts in fact, or even if such a liability exists. … "PROCEEDINGS RELATE TO THE RECOVERY OF THE ESTIMATE" 1. Priority Matters submitted that these proceedings "relate to the recovery of the unpaid amount of the estimate" within item 2, section 268-40(1). Accordingly, the filing and serving of Ms Lee's affidavit was said to have been effective to revoke the estimate, or at least give rise to a genuine dispute about the existence of the debt. The plaintiff accepted that whether reliance on the affidavit for the effect contended was available turned on whether these proceedings "relate to the recovery of the unpaid amount of the estimate" within the meaning of item 2, section 268-40(1). That is, the principles summarised at [7]-[14] do not apply to this initial question but were called in aid on the second question, being whether the affidavit satisfied the requirements of section 268-90. 2. As the parties submitted, the meaning of "relate to" may, depending on the context, bear a wide meaning. The meaning of "relate to" in item 2 of section 268-40(1) was considered by Robertson J in Transtar. There, the Commissioner had issued a notice of estimate. The taxpayer commenced proceedings seeking a declaration that the estimates were revoked, relying on an affidavit filed and served in the proceedings in support of such relief. Robertson J noted that "related to" may bear a wide meaning but nonetheless held that the proceedings did not fall within item 2 of section 268-40(1). At [49]-[53], [62]: (emphasis in original) [49] First, the statutory context suggests that recovery proceedings are those referred to in s 268-5, the object of Division 268 being to enable the Commissioner to take prompt and effective action to recover amounts not paid as required by Part 2-5 (Pay as you go (PAYG) withholding). [50] Secondly, in my view the scheme of the legislation is that the estimate is revoked in such recovery proceedings so that the court is then in a position to determine the underlying liability rather than the accuracy of the estimate. … [51] Thirdly, paying close attention to the terms of item 2, it is the proceedings which must relate to the recovery of the unpaid amount of the estimate. Here, the proceedings are for a declaration that the estimate is revoked in proceedings brought for that purpose. … [52] There is in my opinion a difference in the present context between proceedings that relate to the recovery of the unpaid amount and proceedings that forestall the recovery of that amount. [53] The present proceedings are not, in my opinion, proceedings for the recovery of any money. … [62] … the extrinsic material … suggests that what the legislature had in mind was that the affidavit would operate where the Commissioner brought proceedings to recover the unpaid amount of the estimate. 1. Priority Matters submitted that Transtar did not preclude the present application. Issuing a statutory demand was said to be "action to recover". Thus, an application to set a statutory demand aside was related to that action to recover. Therefore, such proceedings "relate to" the recovery of the estimates. Unlike the declaratory relief sought in Transtar, an application to set aside the statutory demand did not thwart recovery proceedings nor the operation of the estimates regime. Rather, the application caused the plaintiff to identify what it said the actual liabilities were, being the prime objective of the estimate provisions. Nor did the proceedings forestall the ability of the Commissioner to commence recovery proceedings to determine the ultimate question in dispute. 2. Priority Matters also submitted that the text of item 2 did not confine proceedings to those brought by the Commissioner. One of the examples provided below the table at section 268-40 – noted in Transtar (at [61]) as instructive to determine which proceedings would fall within item 2 – was "applying to set aside judgment". As an application to set aside a statutory demand shared similar characteristics to an application to set aside judgment, it was submitted that item 2 was available here. If an application to set aside a default judgment relates to the recovery of an estimate, so too must an application to set aside a statutory demand. Priority Matters submitted that item 3 of section 268-40(1) contemplates that an affidavit may be filed and served in proceedings brought by persons other than the Commissioner, for example, a minority shareholder in an application under section 234 of the Corporations Act. This was said to support a broader reading of "relates to" in item 2. 3. The Commissioner submitted that item 2 is only capable of operation where the Commissioner has brought proceedings to recover the unpaid amount of the estimate. The legislature had explicitly set out the circumstances and procedure that applies where a statutory demand has been issued by the Commissioner relating to an estimate: item 3 of section 268-40(1) specifically provides a taxpayer the opportunity and mechanism to file and serve an affidavit where an application is made by the Commissioner to a court under sections 234, 459P, 462 or 464 of the Corporations Act. Where such an affidavit is made, the court, in winding up proceedings, is in a position to evaluate the contents of the affidavit material relied upon and determine whether the underlying liability existed. This was said to provide further support for the conclusion that item 2 does not concern applications under section 459G of the Corporations Act. 4. Looking first at the 1993 estimates regime and its explanatory memorandum – on which both parties placed considerable reliance – the closest comparator to item 2 of section 468-40 in the 1993 regime was section 222AHC, which provided: 222AHC Defences in recovery proceedings (1) This section has effect for the purposes of proceedings, in so far as they relate to the recovery of the unpaid amount of an estimate. (2) The Commissioner or Deputy Commissioner is not entitled to recover if the person liable or the person's trustee files an affidavit that complies with section 222AHE [now section 268-90] and verifies facts sufficient to prove that the underlying liability never existed or has been discharged in full. (3) If the person liable or the person's trustee files an affidavit that complies with section 222AHE [now section 268-90] and verifies facts sufficient to prove that the unpaid amount of the underlying liability is a specified amount that is less than the unpaid amount of the estimate, the court is to enter judgment in favour of the Commissioner or Deputy Commissioner for the specified amount. … 1. Of this section, the 1993 explanatory memorandum noted, at pages 26-27: Will a person have the right to defend proceedings brought by the Commissioner to recover an estimate on the basis that the Commissioner's estimate is higher than the actual liability? Yes, new section 222AHC provides that the Commissioner is not entitled to recover if the defendant proves by affidavit that: a) the underlying liability never existed; or b) the underlying liability has been discharged; or c) the underlying liability is less than the estimate. in the case of (c), the Commissioner will be entitled to judgment only for the unpaid amount of the underlying liability. … 1. Both the heading to section 222AHC and the explanatory memorandum confirm Robertson J's construction of item 2 in Transtar as confined to proceedings brought by the Commissioner for the recovery of the unpaid amount of an estimate rather than proceedings brought by the taxpayer. That is, the taxpayer is cast as a defendant in recovery proceedings. Consistently with this, each of the examples of a procedural step taken as a party to the proceedings given in item 2 are steps which are taken by defendants: "entering an appearance, filing a notice of intention to defend, or applying to set aside judgment entered in default of appearance". 2. While the plaintiff pointed to the prospect that item 3 proceedings may be commenced by persons other than the Commissioner as supporting a construction of item 2 that "proceedings before a court that relate to the recovery … of the estimate" may also be brought by someone other than the Commissioner, the scope of item 3 does not assist greatly in construing item 2. Obviously enough, the items are directed to different scenarios; otherwise, there would be no need for both items. 3. In short, although the text of item 2, section 268-40 is broadly worded to capture proceedings to which a taxpayer is a party either as plaintiff or defendant, the fact that such proceedings must also "relate to the recovery of the unpaid amount of the estimate" means that, ordinarily, the taxpayer will be the defendant. Priority Matters did not submit that Transtar was wrong, and I would be loathe to depart from the views of such a learned tax jurist. 4. The plaintiff also relied on the following portion of the 1993 explanatory memorandum: Section 222AIE: states the grounds on which a statutory demand is not to be set aside or varied by a court in recovery proceedings. 1. It was said that this indicated that the Parliament expressly considered that an application to set aside a statutory demand in respect of estimated liabilities was recovery proceedings. Section 222AIE provided: 222AIE Defences under section 222AIB not available on application to set aside statutory demand A court is not to set aside or vary a statutory demand on a ground referred to in subsection 222AIB(4). 1. Section 222AIB, "Defences on winding up application", roughly corresponds to item 3 of section 268-40 and section 268-65 and specified how the Court should treat failure to comply with a statutory demand based on an estimate on a winding up application. In short, the Court was not to presume insolvency by reason of failure to comply with the demand where the company had filed an affidavit which complied with section 222AID (now section 268-90) verifying facts sufficient to prove that the liability never existed or had been discharged, either in full or in a specified amount: section 222AIB(2). Section 222AIB(4) provided: Except as provided in subsection (2), the company is not entitled to oppose the application on the ground that: (a) a liability to which an estimate relates never existed or has been discharged in full; or (b) the unpaid amount of such a liability is less than the unpaid amount of the estimate. 1. Section 222AIE and the bulk of section 222AIB is not reproduced in Division 268. Whilst "recovery proceedings" appears to have been used in the 1993 explanatory memorandum when referring to what would now be called "item 3" proceedings, that term is used in Division 268 to refer to "item 2" proceedings: section 268-95(8). Reliance on a now-repealed section which uses "recovery proceedings" in a different context than Division 268 does not assist in construing item 2, section 268-40. 2. Finally, Priority Matters relied on the concession of the Commissioner, recorded by Elliot J in Deputy Commissioner of Taxation v Karas (2013) 278 FLR 402; [2013] VSC 410. In that case, the Commissioner sought a declaration that the taxpayer had an interest in land. The Commissioner sought to rely on section 255-10(1) of Schedule 1 (then in force), which provided: In a proceeding to recover an amount of a tax‑related liability, a statement or averment about a matter in the plaintiff's complaint, claim or declaration is prima facie evidence of the matter. His Honour observed that the Commissioner "properly conceded that this proceeding relates to recovery of an amount of a tax-related liability, rather than being a proceeding to recover such an amount": at [28]. I do not consider that a concession made in respect of another provision in a different context provides guidance of the proper interpretation of section 268-40(1). 1. Turning then to whether an application to set aside a statutory demand is a proceeding that "relate[s] to the recovery of the … estimate", it is important to bear in mind the purpose of a statutory demand. As the learned authors of Austin and Black, Annotations to the Corporations Act observe, the function of the statutory demand procedure is to facilitate proof of insolvency in a winding up application by creating a presumption of insolvency if the demand is properly served and not met: at [5.459E], citing CVC Investments Pty Ltd v P&T Aviation Pty Ltd (1989) 18 NSWLR 295; 7 ACLC 1218; Intergraph Public Safety Pty Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523; 14 ACLC 1234; Equipped Constructions Pty Ltd v Form Architects Pty Ltd [2006] NSWSC 500. 2. True it is that a statutory demand may be used to recover a debt, although it is an abuse of process to use it as a mechanism to recover disputed debts: Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd (1996) 19 ACSR 411 at 416-417; Repforce International Pty Ltd v Master Lease Properties Pty Ltd [2003] NSWSC 970 at [16] (the statutory demand procedure is "not to be used as a lever for gaining payment of a debt concerning which there is a bona fide dispute"); Intergraph at 527 (where a statutory demand is "issued for the improper purpose of exerting pressure on the applicant for the payment of what was, and was known to be, a disputed debt… that statutory demand will be set aside"). The position was summarised by Barrett AJA in In the matter of Zarzar Pty Ltd [2017] NSWSC 93 at [22]: The aim in serving a statutory demand is not to recover the debt (although eliciting payment may become a welcome by-product) but to obtain the benefit of a presumption of insolvency through non-compliance with the demand. The aim of recovery proceedings, by contrast, is to compel payment and obtain monetary satisfaction. 1. Thus, proceedings to set aside a statutory demand – which has the aim of preventing a presumption of insolvency arising – have a tenuous link with the recovery of the underlying debt being, in this case, an unpaid estimate. Contrary to Priority Matters' submission, I consider that an application to set aside a statutory demand issued by the Commissioner in respect of an unpaid estimate does not relate to the recovery of the unpaid amount but are proceedings that "forestall the recovery of that amount" and are not "proceedings for the recovery of any money": Transtar at [52], [53]. As such, an affidavit filed by a taxpayer in proceedings to set aside a statutory demand based upon an estimate are not proceedings "that relate to the recovery of the unpaid amount of the estimate" within the meaning of item 2, section 268-40. 2. Is such a construction of item 2, section 268-40 consistent with Division 268 and, more broadly, with the Corporations Act, noting that Division 268 is not intended to limit or exclude the operation of Chapter 5 or Schedule 2 to the Corporations Act or the Bankruptcy Act 1966 (Cth) "to the extent those provisions or that Act can operate concurrently with this Division": section 268-100? 3. As construed, section 268-40 provides the corporate taxpayer with three opportunities to reduce or revoke the estimate: first, on receipt of notice of the estimate (item 1); second, on becoming a party to proceedings that relate to the recovery of the estimate, as opposed to forestalling such recovery (item 2); or, third, on being served with an application to wind up the company following non-compliance with a statutory demand in respect of the estimate (item 3). It is interesting to consider how this opportunity 'sits' with section 459S of the Corporations Act, which provides: 459S Company may not oppose application on certain grounds (1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground: (a) that the company relied on for the purposes of an application by it for the demand to be set aside; or (b) that the company could have so relied on, but did not so rely on (whether it made such an application or not). (2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent. 1. If an application to set aside a statutory demand based upon an estimate is not an occasion on which the corporate taxpayer may seek to reduce or revoke the estimate, then, on one view of the matter, the taxpayer would require leave to raise this matter on the application to appoint a liquidator based on non-compliance with the statutory demand. However, as section 268-40 has the consequence that "the company could not have so relied on" an affidavit filed on an application to set aside the statutory demand to reduce or revoke the estimate, the taxpayer would not require leave to raise the matter on an application under section 459P to wind up the company. 2. Section 268-65 envisages that a statutory demand may be changed where, after service of the demand, "the amount of the estimate is later reduced, or the estimate is revoked". How does this section work if section 268-40 does not envisage that the service of a statutory demand itself presents an opportunity for a taxpayer to revise the estimate by evidence filed in support of an application to set aside the demand? Section 268-65 still has work to do as the estimate may be reduced or revoked in proceedings brought by the Commissioner to wind up the company: item 3, section 268-40. 3. Thus, the construction of item 2, section 268-40 does not give rise to inconsistencies with Division 268 generally or the Corporations Act. It does, however, have the consequence that a taxpayer's ability to set aside a statutory demand is significantly impaired. This makes sense when viewed with the estimates regime as a whole. In particular, the amount of the estimate is due and payable when the Commissioner gives the notice of the estimate to the taxpayer (section 268-20) regardless of the accuracy of the estimate (section 268-25) and where notice is taken to be given at the time the Commissioner leaves or posts the notice (section 268-15) such that it matters not if the taxpayer contends, as here, that they never received it. Where the corporate taxpayer has not availed itself of the opportunity to revoke the estimate by giving the Commissioner a statutory declaration within seven days of receipt of the notice or such longer period as allowed by the Commissioner (item 1, section 268-40), the scope for genuine disputes as to the existence of the debt may be limited. This result is consistent with the statutory purpose, both expressed in section 268-5 and the extrinsic material, being to enable the Commissioner to "take prompt and effective action" to recover estimates, subject to giving the taxpayer specific opportunities to inform the Commissioner of the actual unremitted amounts. "SOME OTHER REASON" 1. As I am against the plaintiff on the first question, the plaintiff contended that the demand should be set aside for "some other reason" under section 459J(1)(b) of the Corporations Act. Priority Matters submitted it is presently deprived of the opportunity of extinguishing its liability to pay the estimate as the Commissioner has elected not to commence recovery proceedings against the company for the debts claimed in the statutory demand. Had the Commissioner done so, Priority Matters could have availed itself of a statutory right to file an affidavit and therefore exercise a statutory right to have the estimates revoked or reduced. Further, Priority Matters submitted that winding up proceedings may be commenced in which any creditor could take advantage of that act of insolvency. It is commonly an event of default under lending arrangements for any act of insolvency being committed by a borrower or associated entity. 2. The principles governing the Court's power to set aside a demand under section 459(1)(b) were summarised by Young CJ in Eq in Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 at [59]-[61]: 59 In Portrait Express (Sales) Pty Ltd v Kodak (A'asia) Pty Ltd (1996) 20 ACSR 746 at 757, Bryson J truly said that the discretionary power under s 459J(1)(b) should not be activated "unless the decision to do so is supported by some sound or positive ground or good reason which is relevant to the purposes for which the power exists". 60 It is not possible to set out fully the cases that might fall within s 459J(1)(b) nor if it were possible would it be wise to do so. The sort of case that will be covered will include gross defects in supporting affidavits and documentation and where the alleged creditor has made statements or representations relating to the statutory demand which have reasonably induced a change of the alleged debtor's position. 61 A judge is not at liberty to set aside a demand under s 459J(1)(b) merely because he or she subjectively considers it fair to do so. 1. These principles were approved by Barrett J in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 214 FLR 393. His Honour added at [33]: This case shows, in my opinion, that the operation of s.459J(1)(b) is not confined to cases coming within established categories (such as unconscionability and abuse of process) and that the section applies whenever there is a need to counter some attempted subversion of the statutory scheme … 1. In Deputy Commissioner of Taxation v Broadbeach Properties (2008) 237 CLR 473; [2008] HCA 41, the High Court identified that a consideration for the Court in exercising its discretion under section 459J(1)(b) of the Act is the policy underpinning the legislation that created the liability. In that case, the Court examined the policy intent behind sections 14ZZM and 14ZZR of the TAA, which concerned the ability of the Commissioner to seek to recover liabilities that it has assessed, even if there are challenges to those assessments in the Federal Court or Administrative Appeals Tribunal under part IVC of the Income Tax Assessment Act. Here, the policy underpinning Division 268 is to enable the Commissioner to "take prompt and effective action" to recover estimates, subject to giving the taxpayer specific opportunities to inform the Commissioner of the actual unremitted amounts. This points against setting aside the demand under section 459J(1)(b). 2. If winding up proceedings are commenced by the Commissioner, Priority Matters will be entitled to file and serve a complying affidavit to reduce or revoke the liability founding the statutory demand in accordance with item 3 of section 268-40(1): Australia DIS Pty Ltd v Deputy Commissioner of Taxation [2012] VSC 331; (2012) 90 ATR 128 at [25] per Ferguson J. If the company is found to be solvent as a result then, presumably, such winding up proceedings will be dismissed. The availability of this avenue appears to suitably ameliorate any prejudice that Priority Matters may suffer from the enforcement of the demand. Further, there was no evidence of Priority Matters' arrangements with its creditors to support the submission that failure to comply with the statutory demand will lead to default under its lending arrangements. Accordingly, I decline to set aside the statutory demand under section 459J(1)(b) of the Corporations Act. AFFIDAVIT VERIFIES FACTS SUFFICIENT TO PROVE? 1. In the event that I am wrong in concluding that these proceedings do not fall within item 2 of section 268-40(1), Priority Matters contended that the effect of Ms Lee's affidavit was to revoke the estimates or at least give rise to a genuine dispute as to the existence of the debt. Priority Matters submitted that it was not necessary to finally determine whether the affidavit in fact verified the relevant facts, this being the ultimate issue which may be determined at trial, but that in any event the affidavit verified the facts in compliance as required. 2. As already noted, section 268-40(4) provides, "The estimate is revoked if the statutory declaration is to the effect, or the affidavit verifies facts sufficient to prove, that the underlying liability never existed." Further, requirements are contained in section 268-90(2), extracted at [23]. The import of these requirements was considered in Transtar at [67]-[88], where Robertson J considered that the affidavit must be admissible according to the rules of evidence, although the short timeframe within which the affidavit must be provided "suggests that in some cases the affidavit may be a relatively simple one": at [74], [80]. Further, at [78]-[79]: 78 In the present case, in my opinion, to enliven s 268-40(4) it was necessary to do more than assert in affidavits, without reference to primary facts or to primary documents which must have existed, that during the period … no amounts on account of PAYG withholding were withheld from payments made to any person or that [the company] had no employees receiving salary or wages, and paid no amount as salary or wages or at all to any person as an employee, from which it might have withheld an amount on account of PAYG or that during that period [the company] withheld no amount on account of a PAYG obligation of any description or that [the company] had no liability to withhold amounts on account of PAYG withholding obligations and the business of [the company] was arranged to that end. 79 Put differently, this material dealt in a summary way with matters which were by no means pure questions of fact. In addition it dealt with those matters in such a rolled up and conclusory way that it did not in my view verify facts sufficient to prove that the underlying liability, to pay to the Commissioner the amount that [the company] withheld, never existed. Transtar was followed in Deputy Commissioner of Taxation v Armstrong Scalisi Holdings Pty Ltd [2019] NSWSC 129; (2019) 343 FLR 374 by Ward CJ in Eq at [264]-[267], and CLK Kitchens per Derrington J at [183] and [185]. 1. Priority Matters submitted that, in CLK Kitchens, the taxpayer admitted that it had paid wages to employees of a related company, but said that it did not have employees itself. Any such payment would give rise to an obligation to withhold moneys. In that context, asserting that no amounts were withheld despite an obligation to withhold without providing any documentary evidence that "must have existed during the relevant periods" (at [195]), was insufficient. Here, no wages were paid. As a result, there would not be any records that "must have existed"; there is nothing further than could be said by the plaintiff other than to assert that they never paid any wages and, at times, did not have a bank account from which wages could be paid. 2. Priority Matters submitted that Ms Lee's affidavit unequivocally verified the fact that no amounts were withheld for any of the relevant periods and the company was not required to withhold PAYG as it had no employees and did not pay wages. There was no question that the assertions made were a mixed question of fact and law; the simple facts were unequivocally declared and led to only one possible result. Although the affidavit did not attach any contemporaneous documentation, the authorities make clear that what must be attached are documents that must have existed at the relevant time. Here, the plaintiff asserted that nothing existed, and consequently, there would not be any documents that "must have existed". 3. The Commissioner submitted that, if there was a dispute as to whether an affidavit complied with the requirements of Division 268, it was for the Court to determine on a proper analysis of the affidavit, as a jurisdictional fact. Ms Lee's affidavit failed to "verif[y] facts sufficient to prove that the underlying liability never existed" and did not dispel the facts which support the conclusion that the liability never existed. Ms Lee makes reference to reviewing the "books and records" of Priority Matters but does not specify what records she reviewed nor produced copies of those records. No bank statements were proffered. 4. The first question is whether, on an application to set aside a statutory demand, I should apply the principles set out at [7]-[14] governing the Court's power to set aside a statutory demand or determine whether the affidavit verifies facts in accordance with section 268-40(4) and section 268-90(2) as considered by the authorities summarised at [57]. I am inclined to apply the former as this is an application to set aside a statutory demand on the basis of a genuine dispute and not item 2 proceedings to which section 268-40(4) and section 268-90(2) apply. 5. On an application to set aside a statutory demand, the quality and detail of the evidence relied upon by an applicant does not need to be, and likely will not be, to a level required in a fully contested hearing of the principal dispute; the hearsay rule does not apply with the same strictness: Britten-Norman at [37]. It is true that Ms Lee's affidavits are somewhat cursory and unaccompanied by any accounting or banking records of the company which may have corroborated Ms Lee's assertion that, at the relevant time, the company did not have employees, pay wages or maintain a bank account. That said, it is not always easy to prove a negative being, in this case, that Priority Matters did not have employees and did not pay wages. For the purposes of an application to set aside a statutory demand, I consider that Ms Lee's affidavits evidence an issue deserving of a hearing which is arguable and not fanciful. Accordingly, if it were necessary to decide, I would have concluded that there is a genuine dispute that Ms Lee's affidavit complies with sections 268-40(4) and 268-90(2). THE CERTIFICATE 1. Finally, the Commissioner relied on a certificate under section 8AAZJ of the TAA to establish that the failure to lodge penalties and the general interest charges were owing (as distinct from the liability to pay the estimate). Section 8AAZJ(1) provides: Evidentiary certificate about RBA transactions etc. (1) In proceedings for recovery of an RBA deficit debt, a Commissioner's certificate stating any of the following matters in respect of a specified RBA is prima facie evidence of those matters: (a) that no tax debts (other than general interest charge on the RBA deficit debt) were allocated to the RBA after the balance date shown on a specified RBA statement for the RBA; (b) that general interest charge is payable on the RBA deficit debt, as specified in the certificate; (c) that payments and credits were allocated to the RBA, as specified in the certificate; (d) that a specified amount was the RBA deficit debt on the date of the certificate. 1. Priority Matters submitted that the presumptive effect of the certificate had been displaced by Ms Lee's evidence that the company has never been registered for GST, does not trade and generate revenue and does not pay wages. Whilst the Commissioner sought penalties arising from the plaintiff's failure to lodge BAS, the plaintiff submitted that there was no evidence that it was obliged to lodge BAS given Ms Lee's affidavit. Nor could there be any liability for administrative penalties under section 286-75 of Schedule 1 to the TAA for failure to lodge statements by the due date if there is no antecedent obligation to lodge those statements. The plaintiff submitted that there was a plausible contention that it was not liable to pay the penalties given Ms Lee's evidence that there was no obligation to lodge BAS and the Commissioner had led no evidence to the contrary. Reliance upon the evidentiary provisions at section 8AAZH and 8AAZJ of the TAA was not sufficient for the Court to conclude that there was no genuine dispute in light of Ms Lee's affidavit. On this basis, this Court should set aside the demand or alternatively vary the demand to exclude the penalties pursuant to section 459H of the Corporations Act. Likewise, where the general interest charge was calculated on the outstanding balance of the RBA and there was a genuine dispute about the primary tax liabilities identified in the RBA, there was necessarily a genuine dispute about the amount of interest payable on those debts. 2. The Commissioner submitted that Ms Lee's bare denial of the amounts of the penalty and interest charges were insufficient to overcome the prima facie effect of the certificate: Deputy Commission of Taxation v Epov [2008] NSWSC 1085 at [32] per Harrison AsJ. That case is not of great assistance. There, the taxpayer had filed a pleading asserting that the Commissioner's calculation of its tax debts was incorrect. The Associate Justice noted that the Commissioner's certificate was prima facie evidence that the sum was due and owing; something more than a pleading was needed to raise doubt as to the correctness of the certificate: at [32]. Here, Ms Lee has sworn affidavits which, albeit sparse, go beyond a mere pleading. 3. The statutory demand sought payment of $4,873,077.37, being the RBA deficit debt comprising of: 1. estimates for PAYG withholding in the amount of $2,281,900 for the period 1 July 2009 to 30 June 2015; 2. penalties totalling $97,500 for failing to lodge BAS statements for the periods 1 July 2012 to 30 April 2014 and 30 June 2014 to 30 September 2014; and 3. general interest charges in the amount of $2,493,677.37. 1. It follows from my conclusions that, as Priority Matters' liability to pay the estimates stands, so does its obligation to pay interest on the unpaid estimates. The same cannot be said for penalties. Whilst the certificate proffered by the Commissioner is prima facie evidence that penalties are due and payable, Ms Lee's evidence gives rise to a plausible contention that the company was not obliged to lodge BAS returns and thus no penalties are payable. The statutory demand should be varied to exclude the penalties. 2. A mathematical difficulty then arises as to what portion of the interest is referable to the unpaid estimates and what portion is referable to the penalties. The first penalties were added to the RBA on 21 November 2014, when the balance of the RBA in respect of unpaid estimates and interest stood at $2,541,358.83. The interest thereafter calculated was on the RBA balance, which comprised both unpaid estimates and penalties. Obviously enough, the portion of the interest which relates to the penalties is small, where, overall, the penalties comprise 4% of the amounts on which interest was calculated. Varying the statutory demand by reducing the general interest charge by 4% does not yield the interest referable to the unpaid estimates. In fact, such a reduction would be too much where interest accruing until 21 November 2014 – being more than five years – related to unpaid estimates alone and thus should not be deducted for interest on penalties at all. 3. Where the Court is satisfied that there is a genuine dispute about the amount of the debt, the Court must calculate the substantiated amount of the demand by deducting "so much of that amount as the Court is satisfied is not the subject of such a dispute": section 459H(5)(b), Corporations Act. Unassisted by a precise calculation of the portion of interest which relates to the estimates – as opposed to the penalties – I propose to vary the demand by removing the penalties and also 4% of the general interest as, on any view of the matter, this must be at least the portion of the interest referable to the unpaid estimates. ORDERS 1. As to the costs of these proceedings, Priority Matters has had a measure of success, but it is modest indeed. As to the main issue, being the construction of item 2, section 268-40, the plaintiff has failed where there was relevant authority on the point, being Transtar. Overall, I consider that an appropriate order is that the plaintiff pay the defendant's costs of the proceedings. For these reasons, I make the following orders: 1. Pursuant to section 459H(4) of the Corporations Act 2001 (Cth): 1. vary the demand to the amount of $4,675,830; 2. declare the demand to have had effect, as so varied, as and from when the demand was served on the company on 9 March 2021. 1. Otherwise dismiss the originating process filed on 29 March 2021. 2. Order the plaintiff to pay the defendant's costs of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 February 2022