Supreme Court New South Wales Medium Neutral Citation: Catarina v DCT [2011] NSWSC 449 Hearing dates: Tuesday 5 April 2011 Decision date: 18 May 2011 Jurisdiction: Equity Division Before: Associate Justice Macready Decision: I dismiss the proceedings with costs. Catchwords: Corporations - Winding up - Winding up in insolvency - Statutory demand - Application to set aside demand - demand made pursuant to DCT notice of assessment - applicant lodged objections with ATO that have not yet been determined - single application made in relation to two separate statutory demands Legislation Cited: Corporations Act 2001 (Cth) section 459 G Income Tax Assessment Act 1997 (Cth) Taxation Administration Act 1953 (Cth) Pt IVC, sections 8AAZJ, 14ZZM, 14ZZR, 105-5, 105-5(1), 105-20, 105-40, 105-100 Cases Cited: Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 Golden Plantation Pty Ltd v TQM Design and Construct Pty Ltd [2010] NSWSC 1279 Mossimo Systems International Pty Ltd v Deputy Commissioner of Taxation [2010] NSWSC 1409 Category: Principal judgment Parties: Catarina Gardens Pty Limited and Rose Corporation Pty Limited v Deputy Commissioner of Taxation Representation: Counsel: Ms Rose Caporale appeared in person for the plaintiff Mr David Jay for the defendant Solicitors: ATO Legal Branch File Number(s): 2010/145944 Judgment 1This is the hearing of an application under section 459 G of the Corporations Act 2001 (Cth), in which the plaintiff companies seeks to set aside separate demands served upon them by the Deputy Commissioner of Taxation ('DCT'). The plaintiffs appeared by Miss Rosa Caporale an authorised officer thereof, without objection for the defendant. 2The demand served on the first plaintiff is dated 19 May 2010 and claims an amount of $348,943.61. The debt comprises amounts for a Running Balance Account deficit debt in respect of the BAS provisions of the Income Tax Assessment Act 1997 (Cth), together with an administrative penalty. 3The demand served on the second plaintiff is also dated 19 May 2010 and claims an amount of $579,375.13. The debt comprises an amount for a Running Balance Account deficit debt in respect of the BAS provisions of the Income Tax Assessment Act 1997. 4The description of the application in the originating process is as follows: "The application is to set the demand aside. The basis and reasons being as outlined in the Affidavit market Annexure "A". The following documents are also attached as part of Annexure "A". The statutory demands marked Annexure "B", "C" ..." 5Although dated the same day in each case the creditors statutory demand is founded on a separate and discrete debt based on a unique factual substratum. Each debt is unique as between the respective plaintiff and the DCT. Accordingly it was submitted that each company was required to make "an application" in accordance with s 459G. 6In Golden Plantation Pty Ltd v TQM Design and Construct Pty Ltd [2010] NSWSC 1279 at paragraphs [13] to [18] Justice Barrett noted that a single Originating Process relied on by multiple plaintiffs is defective. He said: "13. In the light of s 459G(1), a company on which a statutory demand has been served may apply for "an order setting aside" that statutory demand. In this case, GP does not seek an order setting aside the statutory demand served on it by TQM; nor does KCL seek an order setting aside the statutory demand served on it by TQM. Both plaintiffs claim a single order, being an order operating upon and in relation to both statutory demands. 14. The approach the plaintiffs have seen fit to take does not contemplate the setting aside of one statutory demand independently of the other. The claim is an all or nothing claim in respect of both statutory demands. 15. I was taken to the various cases in which this kind of issue has been considered, including Help Desk Institute Pty Ltd v Adams (1998) 17 ACLC 18, Femley Pty Ltd v Salken Engineering Pty Ltd [1999] NSWSC 334, Calquid Pty Ltd v A & DR Illes Pty Ltd [2000] NSWSC 558; (2000) 34 ACSR 523, Isaco Pty Ltd v Davey [2003] NSWSC 1043; (2003) 47 ACSR 483, Cooloola Dairys Pty Ltd v National Foods Milk Ltd [2004] QSC 308; [2005] 1 Qd R 12, Filaria Pty Ltd v Carlisle [2004] ACTSC 95, Ambassador At Redcliffe Pty Ltd v Barreau Peninsula Property Pty Ltd [2006] QSC 247; (2006) 58 ACSR 607, Remo Constructions Pty Ltd v Dualcorp Pty Ltd [2008] NSWSC 1172; (2008) 222 FLR 375 and Indigo Financial Money Pty Ltd v Moustrides & Moustrides [2010] SASC 235. 16. The cases allow very little scope indeed for the pursuit of two or more setting aside claims in a single proceeding. To the extent that such an approach might be found to comply with s 459G, it is necessary at the very least (and I do not say this is the only requirement) that there be a separate claim in respect of each statutory demand so that one originating process is, as I put it in Remo Constructions Pty Ltd v Dualcorp Pty Ltd (above) at [34], the vehicle by which each of several distinct applications is made. 17. In other words, a conforming application in respect of one statutory demand might possibly be advanced by an originating process which also advances a conforming application in respect of another statutory demand; but the separateness of the applications so that each application, as it relates to a single and particular statutory demand, has a distinct existence and relates to that demand alone is crucial to compliance with the scheme of s 459G. 18. The distinct existence of each of several applications is not achieved by the originating process in this case. My conclusion therefore is that the plaintiffs did not, by means of the originating process filed on 10 June 2010, make a valid and effectual application under s 459G in respect of either statutory demand and that the court therefore has no jurisdiction to set aside either demand. This case is, in that respect, the same as Filaria Pty Limited v Carlisle (above)." 7Justice Barrett applied the reasoning in Golden Plantation in Mossimo Systems International Pty Ltd v Deputy Commissioner of Taxation [2010] NSWSC 1409. Rosa Caporale appeared as the director on behalf of nine companies that sought to set aside statutory demands in that case using a single Originating Process. It was made plain in the judgment that multiple claims based on a single Originating Process is procedurally defective and must fail: at [13]. It was submitted that Ms Caporale, being a director of all of the companies that were plaintiffs in Mossimo, as well as a director of the present plaintiff's, must be aware of the defect in the form of this application. She must also be aware that the application is defective and bound to fail. 8There is no substantive difference between the form of application in this matter and that, which was before his honour Justice Barrett in Golden Plantation . In these circumstances I should apply his Honour's reasoning, which I might add, I am happy to adopt, as it accords with the proper interpretation of the relevant legislation. 9Although it is not necessary to deal with it, in case someone else takes a different view, I will address the other aspects of the claim. 10The companies lodged BAS that resulted in credits being paid by the Australian Taxation Office ('ATO') to them. Copies of the BAS are exhibited to the affidavit of Claudio Casonato filed 16 September 2010. 11The DCT undertook audits of the companies. As a consequence of those audits the DCT determined the companies were not entitled to any of the credits claimed. 12Each of the companies were notified when the ATO audits (2 each) were complete and provided with: (a)reasons for the DCT's conclusions; (b)Notices of assessment of a net amount; and (c)Notices of assessment of penalty. 13As pointed out in submissions, Catarina Gardens was provided with notice of the completion of the ATO's audit and reasons for the decision by letters dated 5 March 2009 ('the first audit') and 19 February 2010 ('the second audit'). The reasons in the first audit indicate that between July 2006 and June 2008, Catarina Gardens claimed to have made creditable acquisitions of $444,749 and received input tax credits of $40,431 ('the credits'). 14It was said that there were insufficient funds in Catarina Gardens' bank account to make the acquisitions. $365,900 was deposited into Catarina Gardens bank account from an unidentified source. The source of those deposits was not explained. No supporting documentation to substantiate the acquisitions or credits was provided by Catarina Gardens. In respect of discrepancies in the bank accounts the audit reasons stated: "$365,900 was deposited into your bank account from unidentified sources. Your director, Rosa Caporale, was unable to provide any documentation to explain the source of the $365,900 deposited into your bank account. Rosa Caporale said that the $365,900 came from another of her companies but she would not provide details or any other information to confirm that the monies were other than sales made by you. You did not return the $365,900 as sales or the GST included with those sales in your BAS." (emphasis added) 15A notice of assessment of net amount dated 5 March 2009 pursuant to s 105-5(1) of the Taxation Administration Act 1953 (Cth) was provided to the company. A notice of amended assessments of net amount dated 18 February 2010, pursuant to s 105-25 of that Act was also served. 16Rose Corporation Pty Ltd was served with notices of assessment of net amount and notice of amended assessments of net amount. 17The DCT created running balance accounts for the primary tax debts of the companies. The running balance accounts collated all of the liabilities of the companies, including the GIC. 18The plaintiffs in their application suggest that there is a genuine dispute about the amount of its liability the subject of the assessment and the running balance account. They led evidence in respect of two major projects, which it says the dispute centres around, to show that they are genuine and that the views of the Commissioner as exemplified in his audit are wrong. The plaintiff also suggests that the matter being the subject of an objection that has been partially dealt with by the Commissioner also justifies the dismissal of the proceedings. 19It is necessary to examine the legislative background to see if these approaches by the plaintiffs are available to them within the framework of the legislation. 20Pursuant to s 105-5(1) of the Taxation Administration Act 1953, the Commissioner may make an assessment of the "net amount" in respect of a taxpayer for a tax period. Notice of the assessment must be given: s 105-20. An assessment may be amended at any time: s 105-25. Section 105-40 permits the taxpayer to lodge objections to a decision under s 105-5 in the manner set out in Pt IVC. 21Section 105-100 of Taxation Administration Act 1953 (Cth) provides as follows: " 105-100 Production of assessment or declaration is conclusive evidence The production of: (a) a notice of assessment under this Part; or (b) a declaration under: (i) section 165-40 or subsection 165-45(3) of the *GST Act; or (ii) section 75-40 or subsection 75-45(3) of the Fuel Tax Act 2006 ; is conclusive evidence: (c) that the assessment or declaration was properly made; and (d) except in proceedings under Part IVC of this Act on a review or appeal relating to the assessment or declaration-that the amounts and particulars in the assessment or declaration are correct." 22The companies lodged objections with the ATO to the Notices of Assessment in February 2009 under Pt IVC. Those objections have been determined in part and resulted in a small reduction of liability. 23Objections lodged with the ATO are not "proceedings under Pt IVC" and so have no effect on the conclusive evidence provisions of s 105-100(d). 24It was submitted that section 105-100 of Taxation Administration Act 1953 is a conclusive evidence provision which applies to GST assessments: Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 at [33]. The effect of a conclusive evidence provision is that the amounts and all of the particulars of the assessments or declarations leading to the debts stated in the demands are correct: FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360; Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857. 25There has been tendered in evidence a certificate under section 8AAZJ of the Taxation Administration Act 1953 (Cth). That certificate is in the following form: "Pursuant to Section 8AAZJ of the Taxation Administration Act 1953 I hereby certify that: In relation to proceedings 2010/145944 in the Supreme Court of NSW at Sydney for recovery of RBA deficit debts against the following companies: Catarina Gardens Pty Ltd (ACN 120 773 051); Rose Corporation Pty Ltd (ACN 097 708 837); 1. No tax debts (other than general interest charge on the RBA deficit debts) were allocated to the RBA after the balance date of 19 May 2010 shown on the statement; (being the date of issue of the creditors' statutory demand on the company) 2. Credits and remissions of penalties in the sum of $60,603.40 have been allocated to the RBA since 19 May 2010 for Catarina Gardens Pty Ltd 3. No payments and credits have been allocated to the RBA since 19 May 2010 for Rose Corporation Pty Ltd 4. As at 4 April 2011, the RBA deficit debt owed by the companies is $946,229.95." 26Section 8AAZJ is in the following form: " 8AAZJ 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. (2) In this section: Commissioner's certificate means a certificate signed by the Commissioner or a delegate of the Commissioner, or by a Second Commissioner or Deputy Commissioner." 27As pointed out in submissions in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 the High Court heard an application by three companies in respect of, inter alia, unpaid running balance account deficit debts for GST, GIC and penalties. The respondents lodged objections to assessments made by the ATO. The objections were disallowed. The companies then commenced review proceedings in the Administrative Appeal Tribunal under Pt IVC of TAA53. The ATO issued statutory demands against the companies. The review proceedings were pending when the application to set aside the statutory demands was heard. The trial judge ordered that the statutory demands be set aside pursuant to ss 459H(1)(a) and 459J(1)(b) of the Corporations Act . The Deputy Commissioner's appeal to the Court of Appeal was dismissed. 28On the conclusiveness of the certificate the High court said the following: "57. Nothing turns upon the attribution to a s 459G application of the character of a proceeding in which, as Keane JA said, a tax debt may be disputed by the applicant taxpayer. Section 459G applications by taxpayers are not Pt IVC proceedings and production by the Commissioner of the notices of assessment and of the GST declarations conclusively demonstrates that the amounts and particulars in the assessments and declarations are correct ( Administration Act , Sch 1, s 105-100; Assessment Act , s 177(1)) . That being so, the operation of the provisions in the taxation laws creating the debts and providing for their recovery by the Commissioner cannot be sidestepped in an application by a taxpayer under s 459G of the Corporations Act to set aside a statutory demand by the Commissioner. 58. The matter was explained, with respect correctly, by Williams J in Bluehaven Transport Pty Ltd v Deputy Federal Commissioner of Taxation (2000) 157 FLR 26 at 32. 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. The phrase "may be recovered" in ss 14ZZM and 14ZZR of the Administration Act applies to the statutory demand procedure. That state of affairs places the existence and amounts of the "tax debts" outside the area for a "genuine dispute" for the purposes of s 459H(1) of the Corporations Act . " 29Accordingly there can be no genuine dispute as asserted by the plaintiffs. The question remains as to whether there is room for the application of s 459J (1) (b) of the act because the Commissioner has acted oppressively. On this aspect, On this aspect, the majority of the Court in Broadbeach said: "59. Something should be added respecting the additional alternative ground found in para (b) of s 459J(1) of the Corporations Act . That was that the statutory demands were to be set aside because the Court of Appeal and the primary judge were "satisfied" that, although there were no defects in the demands, there was "some other reason" to set them aside. 60. It first should be observed that the hypothesis in the present appeals must be, in accordance with what has been said above, that there is no "genuine dispute" within the meaning of s 459H(1). Both the primary judge and the Court of Appeal emphasised the importance of the disruption to the taxpayers, their other creditors and contributories that would ensue from a winding up, together with the absence of any suggestion that the revenue would suffer actual prejudice if the Commissioner were left to other remedies to recover the tax debts. But these considerations are ordinary incidents of reliance by the Commissioner upon the statutory demand system. 61. Keane JA, expressing disapproval of what had been said to the opposite effect by Olney J in Kalis Nominees Pty Ltd v Deputy Commissioner of Taxation (1995) 31 ATR 188 at 193, held that the scope of the discretion conferred by para (b) of s 459J(1) should be determined by the subject matter and purposes of the Corporations Act, to the exclusion of "the tax law" ((2007) 25 ACLC 1341 at 1361). But, as remarked earlier in these reasons, Pt 5.4 contemplates that the "debts" in respect of which statutory demands may issue will include "tax debts" in the sense given to that expression in these reasons. The "material considerations" See House v R (1936) 55 CLR 499 at 505 ; [1936] HCA 40 which are to be taken into account, on an application to set aside a statutory demand, when determining the existence of the necessary satisfaction for para (b) of s 459J(1) must include the legislative policy, manifested in s 14ZZM and s 14ZZR of the Administration Act , respecting the recovery of tax debts notwithstanding the pendency of Pt IVC proceedings. 62. The result is that the exercise of discretion by the primary judge under s 459J(1)(b) miscarried, and the Court of Appeal erred in upholding and supplementing it. Against the possibility of this Court so concluding, the respondents submitted that the matter should be remitted to the Supreme Court for re-exercise of the discretion under that provision. However, no fresh ground upon which the respondents might then succeed was suggested beyond reference to the time which has elapsed and the progression of the Pt IVC proceedings towards determination. But such a consideration, if it were supported by evidence of the state of progression of the Pt IVC proceedings, would be relevant in the operation of Pt 5.4 of the Corporations Act , if at all, at the later stage of the hearing of any winding up application. There should be no re-exercise of the discretion conferred by s 459J(1)(b)." 30It can be seen that the mere existence of an objection with nothing more would not constitute oppression or an abuse when one has regard to the policy manifested in ss 14ZZM and 14ZZR of the Taxation Administration Act , in respect of the recovery of tax debts notwithstanding pending Pt IVC proceedings. 31In these circumstances, I do not think that there is any ground available to the plaintiffs. 32I dismiss the proceedings with costs. ********** 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: 18 May 2011