Moutere v Dct [2000] NSWSC 379 (12 May 2000)

Last Updated: 16 October 2000

NEW SOUTH WALES SUPREME COURT

CITATION: Moutere v DCT [2000] NSWSC 379

CURRENT JURISDICTION: Equity

FILE NUMBER(S): 1276/99

HEARING DATE{S): 9 May 2000

JUDGMENT DATE: 12/05/2000

PARTIES:

Moutere Pty Ltd (P)

Deputy Commissioner of Taxation (D)

JUDGMENT OF: Austin J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

J H Bryson IP)

P Rodionoff (D)

SOLICITORS:

G H Healey & Co - Newtown (P)

Australian Government Solicitor (D)

CATCHWORDS:

CORPORATIONS - winding up - statutory demands - demand for unpaid penalties under Prescribed Payment System - whether genuine dispute as to existence or amount of debt - whether 'some other reason' to set aside demand

ACTS CITED:

Administrative Decisions (Judicial Review) Act 1977 (Cth) s 9

Corporations Law ss 459E, 459H, 459J

Income Tax Assessment Act 1936 (Cth) ss 221YHAAF, 221YHA, 221YHDA, 221YHDC, 221YHH, 221YHJ, 221YHL, 221YHM, 221YHN, 221YHT

Income Tax Regulations, Regs. 126, 126(1), 126(2), 126(3)(e), 126(4)

Taxation Administration Act 1953 (Cth) ss 14ZW(1)(c), 14ZZM, 14ZZR

DECISION:

Summons dismissed

JUDGMENT:

THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

AUSTIN J

FRIDAY 12 MAY 2000

1276/99 . MOUTERE PTY LIMITED V DEPUTY COMMISSIONER OF TAXATION

JUDGMENT

1 HIS HONOUR: On 14 January 1999, the defendant (`the Commissioner') served on the plaintiff a statutory demand, issued under s 459E of the Corporations Law. The demand was for various amounts that the Commissioner alleged to be due and payable under the Prescribed Payment System (`PPS'), established by Division 3A of Part VI of the Income Tax Assessment Act 1936 (Cth) (`the Assessment Act'). In these proceedings the plaintiff seeks an order that the statutory demand be set aside.

The Prescribed Payment System

2 I shall describe the PPS as in force in 1998, in the form applicable for the purposes of the present case.

3 The object of Division 3A of Part VI of the Assessment Act is to provide for the collection of tax by deduction from certain payments for work (`prescribed payments') made by payers (`eligible paying authorities'): s 221YHAAF.

Definitions

4 A `paying authority' is a person who makes, or is liable to make, a prescribed payment (s 221YHA(1)), and `eligible paying authority' is defined to include a paying authority that is not a natural person (s 221YHA(4)).

5 A `payment' means a payment that is made, or is liable to be made, under a contract the performance of which involves the performance of work, but the term does not include a payment of salary or wages (s 221YHA(1)). `Prescribed payments' are payments of a kind declared by the regulations to be prescribed payments (s 221YHA(1)), the relevant regulations being found in Part 7 Division 4 of the Income Tax Regulations. For the purposes of the present case, I need only give a broad and approximate summary of the lengthy and detailed provisions of the Regulations.

6 Regulation 126 declares certain payments to be prescribed payments. The payment must be for the performance of work for a `prescribed person' involving activities of the listed kinds (reg 126(1)). Regulation 126(2) lists various activities in the construction industry, including such matters as painting, the installation of walls and ceilings, and other activities carried out on a structure. Regulation 126(3)(e) specifies the provision of building and construction services of a professional nature. In the present case there is evidence that the plaintiff made various payments to subcontractors for work of the kinds specified in Regulation 126(2) or (3)(e). Regulation 126(4) defines `prescribed person' to mean (approximately) a person who is carrying on a business that consists wholly or principally of carrying out activities of the specified kinds, on behalf of someone else.

7 Either the plaintiff, or one of its joint venture partners, was a `prescribed person' in relation to the building activities which are the subject of this case, though (as I shall explain) there is an issue as to whether, in proceeding against the plaintiff, the Commissioner has selected the correct corporate entity. I note that under s 221YHZ, Division 3A applies in relation to the making of prescribed payments by a partnership as if the partnership were a person, but the obligation may be discharged by any of the partners and they are jointly and severally liable to pay the amounts which are payable under the provisions of Division 3A.

The obligation to deduct and send

8 Where an eligible paying authority makes a prescribed payment to a payee, the paying authority must deduct a certain percentage of the prescribed payment. Under ss 221YHD and 221YHDA, the amount of the deduction depends upon whether the payee has made a payee declaration, a matter that I need not explore in this case. Having made a deduction as required by those sections, the eligible paying authority is discharged from all liability to pay or account for the deduction to any person other than the Commissioner (s 221YHM).

9 The eligible paying authority is obliged to send to the Commissioner all amounts so deducted, within 14 days after the end of each month in which deductions have been made (s 221YHDC(2)). The same section provides that an eligible paying authority which fails to remit the deductions to the Commissioner is guilty of an offence, and it requires the eligible paying authority to make reports to the Commissioner.

Penalties for failure to send payments to Commissioner

10 If the eligible paying authority does not send those amounts to the Commissioner within 14 days of the end of the month, the principal amount continues to be payable and in addition, the eligible paying authority is liable to pay a penalty to the Commissioner under s 221YHJ. The penalty amount is in two parts.

11 First, there is a penalty equal to 20 percent of the principal amount (s 221YHJ(1)(b)(ii)(A) - which I shall call `the subparagraph (A) amount'). Secondly, there is a penalty by way of interest, initially at the rate of 16% per annum but later reduced to 13.5%, on so much of the principal amount and the subparagraph (A) amount as remains unpaid. This penalty is computed from the expiration of the 14 day period (s 221YHJ(1)(b)(ii)(B) - I shall call it `the subparagraph (B) amount').

Penalties for failure to deduct

12 An eligible paying authority that fails to deduct the amount required, at the time of making the prescribed payment, must pay a penalty to the Commissioner under s 221YHH. Again, the penalty amount is in two parts.

13 First, there is a penalty equal to the amount that the eligible paying authority failed to deduct (s 221YHH(1)(a) - which I shall call ` the subparagraph (1)(a) amount'). Secondly, there is a penalty equal to 16% per annum (later, 13.5%) on so much of the undeducted amount as remains unpaid. This penalty is computed from the expiration of the period within which a deducted amount should have been remitted (s 221YHH(1)(b) - I shall call it `the subparagraph (1)(b) amount').

Legal nature of penalties

14 An amount payable to the Commissioner under Division 3A is a debt due to the Commonwealth and payable to the Commissioner, and may be sued for and recovered in a court of competent jurisdiction by the Commissioner or Deputy Commissioner (s 221YHN(1)). It appears that the penalties fall due when the statutory ingredients of s 221YHJ or 221YHH (as the case may be) are satisfied. As far as I can ascertain, there is no statutory requirement for any levy or notice of assessment of penalties to be issued and served, and there is no period of time allowed for payment once the statutory ingredients are present.

Commissioner's discretion to remit

15 The Commissioner has a discretion to remit these penalties in the circumstances stated in s 221YHL. Section 221YHL(1) permits the Commissioner to remit an interest penalty (the subparagraph (B) amount or the subparagraph (1)(b) amount) if he is satisfied of various stated matters relating to the conduct of the person concerned, or is satisfied that there are special circumstances. Section 221YHL(2) permits the Commissioner to remit a `principal' penalty (the subparagraph (A) amount or the subparagraph (1)(a) amount) `for reasons that he thinks sufficient'.

16 According to s 221YHT, a person who is dissatisfied with the Commissioner's decision relating to remission of a `principal' penalty (that is, the subparagraph (A) amount or the subparagraph (1)(a) amount) may object against the decision under Part IVC of the Taxation Administration Act 1953 (Cth) (`the TAA'). It appears that there is no right of objection under the TAA from the Commissioner's decision as to remission of an `interest' penalty. Nor is there any provision that renders Part IVC applicable to any dispute about the `principal' and `interest' penalties other than a dispute about the exercise of the Commissioner's discretion to remit the whole or part of the penalty.

Part IVC

17 Part IVC of the TAA sets out the general provisions governing taxation objections, reviews and appeals. The effect of s 14ZW(1)(c) appears to be that a person must lodge a taxation objection against a decision by the Commissioner under s 221YHL with respect to remission of penalties within 60 days after notice of the decision has been served on the person.

18 Sections 14ZZM and 14ZZR are relevant to this case. They provide that the fact that a review or appeal is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision, and any amount which is payable by virtue of the decision may be recovered as if no review or appeal were pending. Thus, if an objection were to be made against the Commissioner's decision with respect to remission of `principal' penalties under s 221YHL, the lodgement of the objection would not remove the taxpayer's obligation to pay the unremitted part of the penalties in the meantime.

The statutory demand

19 The Commissioner's statutory demand required payment of $160,564.05. It was divided into two parts. The first part related to prescribed payment deductions which had not been sent to the Commissioner, and penalties in respect of those amounts. The second part related to penalties for prescribed payment deductions that had not been made.

20 There were three components to the first part of the statutory demand. The first component related to the prescribed payment deductions themselves (deductions that had been made but not sent to the Commissioner). The amounts claimed were $7,902 for the year ended 30 June 1997 and $86,324 for the year ended 30 June 1998. Payment of the former amount was acknowledged in the statutory demand. Payment of part of the latter amount was acknowledged in the statutory demand, and the evidence is that the remainder has subsequently been paid.

21 The second component was the subparagraph (A) amount - that is, the `principal' penalty calculated as 20 percent of the amounts deducted but not sent. This was calculated as $15,580.40 in respect of the year ended 30 June 1997, and $17,264.40 in respect of the year ended 30 June 1998.

22 The third component was the subparagraph (B) amount - that is, the `interest' penalty with respect to both the amounts deducted but not sent and the 20 per cent penalty on those amounts. This was calculated as $2,172.35 in respect of the principal amounts for the year ended 30 June 1997, and $11,838.40 in respect of the amounts for the year ended 30 June 1998.

23 The net amount demanded in the first part of the statutory demand, made up in these ways, was $87,081.55, but as I have mentioned, a payment was subsequently made. The payment reduced that amount to $31,855.55.

24 There were two components to the second part of the statutory demand. The first component was the subparagraph (1)(a) amount - that is, the `principal' penalty equivalent to the amount that should have been but was not deducted under the PPS. This was calculated as $17,595.30 for the year ended 30 June 1997, $40,347.80 for the year ended 30 June 1998 and $5,249.30 for part of the year ended 30 June 1999.

25 The second component was the subparagraph (1)(b) amount - that is, the `interest' penalty on the subparagraph (1)(a) amounts. This was calculated as $4,929.30 on the principal amount for the 1997 year, $5,061.85 for the 1998 year, and $298.95 for the 1999 year.

26 The total amount claimed in the second part of the statutory demand, made up in these ways, was $73,482.50. The interest components in both parts of the statutory demand were calculated as at 8 January 1999, and further interest has accrued with respect to unpaid amounts in the meantime.

The plaintiff's challenges to the statutory demand

27 The plaintiff invites the Court to set aside the statutory demand on the ground that there is a genuine dispute as to the existence or amount of the debt claimed (s 459H), and also on the ground that there is `some other reason why the demand should be set aside' (s 459J(1)(b)). The latter ground arose only in the plaintiff's submissions in reply, but no objection was taken to its being raised so late, and I propose to deal with it.

28 Section 459H applies where the Court is satisfied that there is a genuine dispute between the company and the respondent (the person who served the demand) about the existence or amount of a debt to which the demand relates. The section also applies where the Court is satisfied that the company has an offsetting claim, but no such claim has been made in this case. The section requires the Court to calculate the `substantive amount of the demand', by reference to a formula. The formula has the effect, in a case such as the present, that if the Court is satisfied that there is a genuine dispute about the existence of the debt, there is no substantiated amount, and if the Court is satisfied that there is a genuine dispute about the amount of the debt, the substantiated amount is reduced by the disputed amount. If the substantiated amount is less than $2000, the Court must set the demand aside.

29 Section 459J(1) empowers the Court to set aside a demand if it is satisfied that:

(a) because of the defect in the demand, substantial injustice will be caused unless the demand is set aside; or

(b) there is some other reason why the demand should be set aside.

30 Until the decision of the Full Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681; (1997) 76 FCR 452, there were inconsistent lines of decision as to the correct interpretation of s 459J. The question was whether a defective demand could be dealt with only under subparagraph (a), which was available only if substantial injustice would be caused if the demand were not set aside, or if the demand could also be set aside under subparagraph (b) which did not impose the `substantial injustice' requirement. The Full Federal Court opted for the former solution. It is not suggested in the present case that there is any defect in the demand itself. Nevertheless the Spencer Constructions case is worth noting, because the Court held that subparagraph (b) is available if the Court is satisfied that there is a reason for setting aside the demand which goes beyond a mere defect in the demand itself.

31 In Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 96 ATC 4163 the Full Federal Court reviewed the scope of subparagraph (b). The Court quoted from the Explanatory Memorandum accompanying the Corporate Law Reform Bill 1992, which introduced the present statutory demand provisions. According to paragraph 687 of that document, with which the Full Court agreed, subparagraph (b) is a general power enabling the Court to take account of matters such as improper or invalid service and mistakes or misstatements in the notice of demand, in circumstances where this would significantly prejudice any party. Referring to the Australian Law Reform Commission's discussion paper, General Insolvency Inquiry (DP 32, 1987, paragraph 114), the Court observed that subparagraph (b) would also be available where a creditor unreasonably refuses the company's offer to meet the debt. In the case before the Court, the judge at first instance implied that he would have been prepared to exercise the discretion in the company's favour, had he been shown that the Commissioner's conduct was unconscionable, or an abuse of process, or that it had given rise to substantial injustice.

32 I reviewed these and other authorities in Daewoo Australia Pty Ltd v Suncorp-Metway Ltd [2000] NSWSC 35. In that case it was submitted that the defendant was not justified in serving a statutory demand because it was protected by credit insurance against the risk of non-payment of the plaintiff's debt, and that being so, that the plaintiff should be given time to develop a `work-out' proposal for its international operations, without the threat of insolvency proceedings. I declined to apply subparagraph (b), principally because these circumstances were not a good enough reason for depriving the defendant of the benefit of the statutory presumption of insolvency, which arises from non-compliance with a statutory demand.

33 I shall consider the plaintiff's contentions in light of these principles.

The disputed elements of the debt

34 Doing the best I can to analyse the plaintiff's evidence, it appears to me that there are broadly four grounds upon which the plaintiffs contend that there is a genuine dispute as to the existence or amount of the debt claimed by the Commissioner.

Allegations of abuse of process and improper motives

35 First, Mr Longworth (a director of the plaintiff who gave affidavit evidence and oral evidence at the hearing) asserted that the issue and service of the statutory demand was an abuse of process, motivated by improper purposes contrary to the Taxpayers' Charter. There was no evidence of the contents of the Taxpayers' Charter, or any specific evidence of breaches of it. The facts relied upon to support the allegations of abuse of process and improper motives show only that the Commissioner's officers endeavoured to recover amounts which, under the taxation legislation, were penalties due and payable.

36 In his affidavit Mr Longworth gave evidence that at a meeting on 3 December 1998 between him, the plaintiff's accountant and the Commissioner's officers, it was arranged that the accountant would provide the Commissioner with a schedule showing the plaintiff's response to the Commissioner's claims, within 14 days. The Commissioner's evidence was that it was agreed that the schedule would be supplied within seven days, and in cross-examination Mr Longworth acknowledged that the shorter period may have been correct. In any event, the schedule was not supplied to the Commissioner before he wrote to the plaintiff on 16 December 1998 making a demand for penalties. The schedule had still not been supplied when the statutory demand was served on 14 January 1999. These facts are not evidence of any abuse of process or improper motives.

Allegations that certain payments were not `prescribed payments'

37 On 19 March 1999, well after the statutory demand had been served and proceedings had been instituted, the plaintiff's solicitor wrote to the Commissioner's solicitor making an offer for settlement of the Commissioner's claim for penalties. The letter dealt separately with the Commissioner's claim for penalties for failure to make deductions, and his claim for penalties for failure to send deducted amounts. As to the latter, the letter stated that the amounts in question had been paid and asked of the Commissioner to reassess the level of penalties, for various reasons that were set out.

38 As to the former, the letter enclosed a schedule setting out details of the amounts claimed by the Commissioner, by reference to payees and amounts paid. A column in the schedule identified certain `disputed amounts', and then purported to give, in each case, a reason for the dispute. The reasons were expressed cryptically, and were not elaborated or clarified in the plaintiff's evidence at the hearing. The main reasons appear to have been that some of the payments were not related to the building industry and others were payments for materials rather than work.

39 On 21 April 1999 the plaintiff's solicitor wrote to the Commissioner's office enclosing various documents in support of the plaintiff's claims with respect to disputed amounts. But the Commissioner's responsible officer, Mr Zhao, has dealt comprehensively with these materials in his affidavit sworn on 17 December 1999. It is enough for me to say that I accept Mr Zhao's evidence with respect to the `disputed amounts' in paragraphs 14 to19 inclusive of his affidavit. In view of that evidence, my opinion is that the materials put forward in the two letters by the plaintiff's solicitors fall short of showing that there was even any genuine dispute as to whether amounts should have been deducted from the payments made.

The question of corporate entities

40 It is plain from the evidence that the plaintiff dealt with the Commissioner on the basis that it was the corporate entity responsible for deducting amounts from prescribed payments and sending those amounts to the Commissioner, in compliance with Part VI Division 3A. This is made explicit in the letter from the plaintiff's solicitor to the Commissioner's solicitor dated 19 March 1999, which makes an offer of settlement of penalties `owing by' the plaintiff on PPS matters. The hearing was conducted on the same basis, until Mr Longworth's evidence on re-examination. It is clear from Mr Zhao's affidavit that the Commissioner believed that the plaintiff conducted its business under the trading name `Longworth Construction and Development'.

41 In re-examination Mr Longworth said that the construction and development business was a joint venture between himself, the plaintiff, a company called Ullimba and a company called Hatzipoulis Holdings. I then granted leave to the Commissioner to adduce further evidence with respect to the identity of the payer under the PPS.

42 It emerged that the plaintiff was the manager for a joint venture in which Ullimba was the licensed builder, operating under the name Longworth Construction and Development. But Ullimba made no payments and operated no bank account. Subcontractors for the project were paid by cheques drawn by the plaintiff on its account.

43 In submissions at the hearing, the plaintiff contended that there was room for dispute as to whether the entity obliged to make and send deductions in respect of prescribed payments was the plaintiff or Ullimba, and therefore room for dispute as to whether the penalties claimed in the statutory demand were payable by the plaintiff. I disagree, for three reasons. First, the mere fact that some invoices were directed to a business name held by Ullimba, rather than the plaintiff, does not establish that Ullimba was responsible for payment of the invoices and that the plaintiff was not responsible. Secondly, to the extent that the joint venture involved receipt of income jointly, it was a partnership under the definition of `partnership' in s 6 of the Assessment Act, and accordingly s 221YHZ applies. By that section, the joint venture partners are jointly and severally liable to pay amounts which become payable under Part VI Division 3A. Thirdly, the evidence shows that the plaintiff actually made the prescribed payments, whether or not it was liable to do so. It was therefore a paying authority within the definition in s 221YHA(1), even if Ullimba was also a paying authority, because the definition extends to a person who makes, as well as a person who is liable to make, a prescribed payment.

The Commissioner's discretion to remit a penalty

44 The fourth ground advanced by the plaintiff is that the Commissioner has not properly exercised his discretion to consider remission of penalties under s 221YHL. The Commissioner submits that I am unable to deal with this ground, for two reasons. The first is said to be that the exclusive procedure for ventilating this matter is by objection under Part IVC of the TAA. The second is that a challenge to the Commissioner's exercise of discretion on administrative law grounds, may be heard only in the Federal Court, having regard to s 9 of the Administrative Decisions (Judicial Review) Act 1977 (Cth).

45 In the Hoare Bros case the Commissioner issued notices of assessment for income tax and when payment was not made, he served a statutory demand for the tax. The taxpayer applied to set the demand aside on the ground that there was a genuine dispute as to the amount of the debt, since it had lodged an objection to one of the assessments and was seeking an extension of time to lodge an objection against another assessment. Section 177 of the Assessment Act states that the production of a notice of assessment is conclusive evidence of the due making of the assessment, but the notice of assessment was not produced in the proceedings and so there was no occasion for the application of s 177.

46 In those circumstances the Commissioner relied on ss 204 and 208, which respectively provide that income tax assessed is due and payable on the date specified in the notice of assessment, and that when it becomes due and payable, income tax is a debt due to the Commonwealth payable to the Commissioner. He also relied on ss 14ZZM and 14ZZR of the TAA for the proposition that the tax remained due and payable notwithstanding that the taxpayer had lodged an objection which might lead to a review by the Administrative Appeals Tribunal or an appeal to the Federal Court.

47 The Full Court observed (at 4169):

`The structure of the ITAA strongly suggests a legislative intent that the issue and service of a notice of assessment (after expiry of the appropriate period) creates a debt that is immediately due and payable, and that the assessment can be challenged only in the manner provided for by the TAA, Part IVC. Thus, unless there is some genuine dispute about the validity of a notice which has been duly served, there can be no genuine dispute about the existence or amount of the debt specified in the notice (assuming the requisite period has elapsed since service of the notice). A company, or other taxpayer, served with a notice of assessment, is entitled to challenge the assessment through the procedures laid down in the TAA, Part IVC. In the meantime, however, the tax must be paid.'

48 Their Honours subsequently observed (at 4172) that `the mere fact that the company had objected to the assessments, or sought review of the Commissioner's decision before the Administrative Appeals Tribunal, did not establish that there was a genuine dispute as to the existence or amount of the relevant debt'. They said:

`The position is not altered by the fact (if it be such) that the company's objections to the notices of assessment, or its application to the Administrative Appeals Tribunal, raised genuinely arguable issues. Any such issues, or disputes, do not affect the character of the debt to which the statutory demand relates.'

49 Ireland J reached the same conclusion as to the effect of the taxation legislation, especially ss 14ZZM and 14ZZR of the TAA, in Deputy Commissioner of Taxation v Ho (1996) 32 ATR 269, in the context of an application for a stay of recovery proceedings.

50 The present case is different from the Hoare Bros case in one respect. There the debt claimed by the Commissioner was for unpaid income tax, governed by ss 204 and 208 of the Assessment Act (as well as s 177, had it been invoked), and Part IVC of the TAA (including ss 14ZZM and 14ZZR) applied comprehensively to any dispute about the assessments. In the present case ss 221YHH, 221YHJ and 221YHN(1) have a combined effect equivalent to ss 204 and 208 in the case of income tax (except that penalties fall due and payable without any process of assessment or time for payment). But Part IVC of the TAA applies only to a dispute which arises about the exercise of the Commissioner's discretion to remit the `principal' penalties. It is arguable that if the taxpayer contests his liability to pay a PPS penalty for a reason which does not bring into question a decision of the Commissioner with respect to remission of a `principal' penalty, then there is no exclusive procedure for dealing with the objection and consequently the reasoning in the Hoare Bros case is inapplicable. If the taxpayer's grounds for challenge would lead to the conclusion that the amount claimed by the Commissioner does not fall within the statutory provisions which render a penalty due and payable, then arguably there is a dispute with respect to the existence of the penalty debt, which the taxpayer could raise as a basis for setting aside the Commissioner's statutory demand. But this is not so in the present case. The first three of the plaintiff's grounds for contending that there is a genuine dispute with respect to the existence of the debt have not been made out on the facts, for reasons which I have given. The fourth ground relates to the Commissioner's decision regarding remission of penalty, objection to which is governed by Part IVC of the TAA. To the extent that the plaintiff relies on this fourth ground, it must fail upon the application of the decision in the Hoare Bros case.

51 That being so, it is unnecessary for me to decide whether s 9 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) prevents me from entertaining the plaintiff's submissions on this fourth ground. However, it is far from obvious that a decision by this Court that there is a genuine dispute as to the existence or amount of a debt, which has become payable by the exercise of a discretion by an officer of the Commonwealth, would amount to or involve any `review' of that exercise of discretion.

The power to set aside a statutory demand for `some other reason'

52 The plaintiff submits that the conduct of the Commissioner's officers provides a sufficient reason for setting aside the statutory demand. One contention seems to be that they should have allowed more time for the plaintiff to develop its case with respect to the disputed amounts. But the evidence is that the plaintiff's accountant failed to produce a schedule of disputed amounts within the agreed time, and in fact the schedule was not provided for another three months.

53 Another contention is that the Commissioner's officers did not adequately or properly consider the plaintiff's request for remission of penalties. I have held that a dispute about the remission of penalties is not a dispute about the existence or amount of the debt constituted by the penalties, in light of the Hoare Bros case. In that case the Full Court rejected an argument that since the company had lodged objections and was pursuing an application to the Administrative Appeals Tribunal, and since there was a genuine dispute between the parties as to the subject matter of the objections, the trial judge was bound to exercise his discretion under subparagraph (b) in favour of the company. A fortiori, the Court cannot be bound to exercise its discretion under subparagraph (b) in the present case, where no objection has been lodged, and the time limit for objections to be lodged has long since expired.

54 Subparagraph (b) nevertheless has an important role to play in circumstances such as the present, as the Full Court's remarks in the Hoare Bros case (at 4174) indicate. The policy underlying s 459H is that the statutory demand procedure should not be used to coerce a person to pay a disputed amount. A statutory demand is not an instrument of debt collection. By analogy, the Commissioner should not use the statutory demand procedure to apply coercive pressure to a taxpayer who genuinely objects to the Commissioner's decision. To do so would be to take unfair advantage of those provisions of the taxation legislation (such as ss 14ZZM and 14ZZR of the TAA) which say that an amount owing in consequence of the Commissioner's decision is recoverable, notwithstanding that an objection has been lodged against the decision.

55 If the Commissioner decides not to await the outcome of the objection, the proper course will often be for him to take proceedings for recovery of the debt rather than to summon up the spectre of liquidation by issuing a statutory demand. If the Court forms the view that the Commissioner has acted oppressively or unfairly by issuing a statutory demand in such circumstances, the appropriate course is for the Court to set the demand aside under s 459J(1)(b). By doing so the Court does not deny that the debt is recoverable although an objection has been made, but it thereby insists that the statutory demand procedure should not be used to apply pressure for payment of an amount which might ultimately be found not to be payable.

56 In the present case however, the plaintiff's disagreement with the Commissioner's decision on remission of penalties does not warrant the setting aside of the statutory demand under subparagraph (b). The Commissioner notified the plaintiff of his decision on remission of penalties by letter dated 16 December 1998, after the promised schedule of disputed amounts had not been sent to him. He served the statutory demand on 14 January 1999, and the schedule was sent only on 19 March 1999. The plaintiff's solicitor's letter of that date urged the Commissioner to review his decision with respect to penalties, but in light of the history of the matter which I have outlined, it is not surprising that he has adhered to his original decision. There is no evidence that any notice of objection was lodged against that decision under Part IVC of the TAA.

57 It would have been open to the Commissioner to take proceedings for recovery of the debt, rather than to issue a statutory demand at that stage. However, this is not a case where the Commissioner's decision to opt for a statutory demand rather than debt recovery can be regarded as unconscionable or unfair or an abuse of process.

58 The plaintiff seeks to emphasise the fact that it was open to the Commissioner to take proceedings against any of the joint venturers, and was therefore unfair for him to select and pursue the plaintiff alone. There are two answers to this. First, under s 221YHZ liability is imposed on the joint venturers jointly and severally (assuming that they are in receipt of income jointly and are therefore partners). Secondly, the plaintiff dealt with the Commissioner on the basis that it was the correct entity for the purposes of PPS, until Mr Longworth's re-examination at the hearing.

Conclusions

59 For these reasons I have decided that the statutory demand should not be set aside. I shall therefore dismiss the summons. I shall stand the matter over to hear any submissions that may be made on the question of costs.

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LAST UPDATED: 15/05/2000