New South Wales Supreme Court CITATION : Stratti Ocean & Earthworks Pty Ltd v. Deputy Commissioner of Taxation [2003] NSWSC 509 HEARING DATE(S) : 6 June, 2003 JUDGMENT DATE : 6 June 2003 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Plaintiff's Originating Process dismissed; Plaintiff to pay Defendant's costs on indemnity basis. CATCHWORDS : WINDING UP - STATUTORY DEMAND - INDEMNITY COSTS - Plaintiff commenced proceedings to set aside statutory demand under s.459G, alleging debt genuinely disputed - Plaintiff at all times unable to say whether debt to ATO previously paid because Plaintiff's accounts "in a shambles" - Plaintiff's proceedings dismissed - indemnity costs order sought. HELD: Plaintiff's inability to provide evidence of genuine dispute due to breach of Plaintiff's obligations under s.285 and s.286 Corporations Act to keep proper financial records - commencement and maintenance of s.459G proceedings unjustified - indemnity costs ordered. Income Tax Assessment Act 1997 (Cth) LEGISLATION CITED : Taxation Administration Act 1953 (Cth) Corporations Act 2001 (Cth) - s.285, s.286, s.459G, s.459J CASES CITED : Manning v. Cory [1974] WAR 60 PARTIES : Stratti Ocean & Earthworks Pty Limited - Plaintiff Deputy Commissioner of Taxation of the Commonwealth of Australia - Defendant FILE NUMBER(S) : SC 1365/03 COUNSEL : T. Orlizki (Sol) - Plaintiff P. Rodionoff - Defendant SOLICITORS : Norman Waterhouse - Plaintiff ATO Legal Practice - Defendant Ex tempore 1 The Defendant, the Deputy Commissioner of Taxation, issued a statutory demand to the Plaintiff on 18 January 2003 claiming a debt due of $496,309.97 in relation to the balance of the amount due on an unpaid running balance account under the Business Activity Statement provisions of the Income Tax Assessment Act 1997 (Cth) and administrative penalties and interest due under the Taxation Administration Act 1953 (Cth). 2 Following receipt of the statutory demand, the Plaintiff sought details from the Defendant of amounts said to be owing. The Plaintiff said that it was unable to ascertain whether the debt claimed by the Defendant had been paid in full prior to the issue of the statutory demand and therefore it said that it disputed the debt. A print-out of the account was sent by the Defendant to the Plaintiff's accountant on 7 February 2003. 3 After having received the print-out, the Plaintiff filed an Originating Process on 10 February 2003 seeking an order for the setting aside of the statutory demand under the s.459G and s.459J of the Corporations Act 2001 (Cth) . The affidavits filed in support of the Originating Process in essence said that the Plaintiff disputed the debt because it was unable to ascertain whether it indeed owed the debt or had paid it previously. 4 The print-out accounts sent by the Commissioner have been in the possession of the Plaintiff's accountants since 7 February but, despite a number of directions by the Court that the Plaintiff file any further affidavits upon which it intended to rely, no further evidence was put on by the Plaintiff to substantiate the dispute which it alleged. 5 The matter has remained on foot from the filing of the Originating Process on 10 February to the present time and there have been four directions hearings during that time. 6 Mr Orlizki, who appears for the Plaintiff, has today filed in Court an affidavit sworn by him in which he gives evidence that the inability of the Plaintiff to substantiate the dispute which is alleged is due to the fact that the financial records of the Plaintiff are, to quote the Plaintiff's present accountant, "a shambles" . Apparently the Plaintiff's present accountant has been completely unable to reconcile the Plaintiff's accounts despite doing considerable work since the commencement of these proceedings. 7 The Plaintiff has been in default, as I say, of a number of directions made by the Court for the furnishing of further affidavits. When the matter was called on today, Mr Orlizki advised the Court that the Plaintiff was not proceeding with its application to set aside the statutory demand and that therefore the application would have to be dismissed. Mr Rodionoff, who appears for the Defendant, then sought an indemnity costs order, which Mr Orlizki opposed. 8 In the circumstances which I have recounted, it seems to me that there was no justification for the Plaintiff to assert, as it did in commencing these proceedings, that the Deputy Commissioner's debt was genuinely disputed: the state of its own accounts did not enable it to say one way or another whether or not it had already paid the Commissioner's debt. Even after the Deputy Commissioner had supplied the information which the Plaintiff requested, the Plaintiff was none the wiser. The inability of the Plaintiff to provide evidence of the alleged dispute, if there be any ground for such a dispute at all, is due to its own apparent breach of its obligations under s.285 and s.286 of the Corporations Act to keep proper financial records. The purpose of those sections is to prevent a company and its officers from "flying blind" as to the company's true financial position at any time: see e.g. Manning v. Cory [1974] WAR 60. I do not think that a company in the position of the Plaintiff in this case should be entitled to any indulgence by reason of its own unexplained failure to comply with its statutory obligations. 9 It seems to me, therefore, that the conduct of the Plaintiff, in commencing these proceedings in the first place, maintaining them on foot and, in the meantime, failing to comply with the Court directions is deserving of the imposition of an indemnity costs order. 10 Accordingly, the order of the Court will be that the Originating Process of the Plaintiff is dismissed. The Plaintiff will pay the Defendant's costs of the Originating Process on an indemnity basis. – oOo – Last Modified: 06/12/2003 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.