Peter A Clarke

The current High Court’s reputation as a black letter court is well established.  In Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41  the court has effectively closed off any challenge to a statutory demand based on a tax assessment. With Broadbeach and  Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Limited [2008] HCA 9 whatever limited discretion given to the Supreme and Federal Courts are now severely curtailed.  It is an interesting case because the court considered the policy considerations and tensions in considering the operation of statutory demands when enforcing the Income Tax Assessment Act.  In the clear tension between the two, the Court has sided with the Commissioner. Protecting the revenue is a strong policy consideration guiding the modern court. 

A brief analysis follows:

These matters were appeals from the Court of Appeal ouf the Spreme Court of Queensland.  In those cases the Court of Appeal upheld the decision of the primary judge.  The court pithily described, at [3] and [4] the key issue as being: 

The issues in the litigation with the appellant (“the Commissioner”) which have reached this Court concern the interaction between two statutory regimes established by federal law. The first is that for the winding up of companies in insolvency which is found in Pt 5.4 (ss 459A–459T) of the Corporations Act 2001 (Cth) (“the Corporations Act“) and includes provisions for the service of statutory demands on companies for payment of debts.

The second regime is established by the provisions for the assessment and collection of income tax and the goods and services tax (“the GST”). The relevant provisions appear primarily in the Income Tax Assessment Act 1936 Assessment Act“), the Income Tax Assessment Act 1997 (Cth) (“the 1997 Act“), the A New Tax System (Goods and Services Tax) Act 1999 GST Act“), the Taxation Administration Act 1953 (Cth) (“the Administration Act“) and the Taxation (Interest on Overpayments and Early Payments) Act 1983 (Cth) (“the Overpayments Act”). (Cth) (“the (Cth) (“the

The respondent challenged the assessment in the AAT.  Those proceedings were still pending at the time of this decision.  The key issue is whether the statutory demand, notwithstanding the challenge, was correct.  The Court extracted the relevant sections at [18] and [19] as being: .

Section 459E provides for the service on a company of a statutory demand for payment of debts in excess of the statutory minimum. The company may apply for a court order setting aside the statutory demand (s 459G(1)). In so far as relevant s 459H states:

“(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;

(b) that the company has an offsetting claim.

…

(3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.

…

(6) This section has effect subject to section 459J.” (emphasis added)

The relationship between s 459H and s 459J is indicated by the chapeau to s 459J. This states: “Setting aside demand on other grounds”. Section 459J states:

“(1) On an application under section 459G, the Court may by order set aside the demand if it is satisfied that: (a) because of a 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.

(2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.” (emphasis added)

The Court of Appeal found that the primary judge was correct in finding ther was a genuine dispute (section 459J(1)(b)) which supported the setting aside of the statutory demand. The Commissioners submissions were based on two grounds:

1.  a review application by the AAT regarding the disallowance of an objection is not a genuine dispute.
   
2.  even if there is a reasonably arguable case it is not a proper basis to set aside a statutory demand under 459J(1)(b) as being “some other reason.”

The underlying rationale for not having regard to an appeal as constituting a basis for setting aside an appeal was quoted by the Court at [44] where it cited with approval the musings of Mason ACJ in Clyne v Deputy Commissioner of Taxation and the guiding light that directs the court’s analysis, at [45]:

At a time when the provision for objections and appeals was found in Pt V of the Assessment Act, Mason ACJ said in Clyne v Deputy Commissioner of Taxation[29]:

“I was informed that it is a somewhat unusual course for the Deputy Commissioner to commence proceedings for recovery in a court relying on a notice of assessment which is under challenge in proceedings under [the Assessment Act]. It is to be hoped that this is so. The institution of proceedings for recovery on a notice of assessment which is challenged in proceedings under [the Assessment Act] may operate oppressively and unfairly to a taxpayer … In the ultimate analysis the Deputy Commissioner’s charter to commence recovery proceedings, notwithstanding a challenge … to the correctness of the assessment, is to be found in s 201 of [the Assessment Act]. It provides:

‘The fact that an appeal or reference is pending shall not in the meantime interfere with or affect the assessment the subject of the appeal or reference; and income tax may be recovered on the assessment as if no appeal or reference were pending.’

It is a provision which has been stringently criticized. However, it appears to be impervious to criticism for Parliament has not seen fit to amend it.”

But harsh though the operation of these provisions may be, they implement a long-standing legislative policy to protect the interests of the revenue. In Deputy Commissioner of Taxation v Niblett[30], Asprey J struck out pleas of non-liability to a recovery action instituted by the Deputy Commissioner in the Supreme Court of New South Wales while objections were pending under what was then s 185 of the Assessment Act. His Honour observed:

“It may be thought to be a hardship that a taxpayer should have to pay the tax assessed when an objection to the assessment has not been decided upon but there are obvious financial considerations of high policy that must be weighed in the balance against cases of individual hardship with which the Commissioner through the appropriate use of his powers under [the Assessment Act] can cope … Where the meaning of the words of a statute is clear ‘it is not open to the Court to narrow or whittle down the operation of the Act by seeming considerations of hardship or of business convenience or the like’ – Attorney-General v Carlton Bank[31].”

At [49] the Court engages in some linguistic acrobatics stating, at first, that the legislation provides a basis to set aside statutory demands and, secondly, that limitations should not be construed without the sufficient reason to do so.  The High Court then says that the sufficient reason is that as the Commissioner submits, that a demand based on an asessement is not a sufficiently good ground. 

It is true that s 459G provides for curial decisions to set aside statutory demands and that grants of jurisdiction to superior courts such as the Federal Court and the Supreme Courts are not to be construed with limitations without sufficient reason to do so. The many authorities to this effect were collected by Kirby J in Aussie Vic Plant Hire[37]. But the provisions of the taxation legislation, with an eye to which the statutory demand provisions clearly were drawn[38], and, in particular, the antecedents in what was s 201 of the Assessment Act and now s 14ZZM (as to pending AAT reviews) and s 14ZZR (as to pending Federal Court “appeals”), supply sufficient reason for construing the statutory demand provisions as the Commissioner contends.

The nature of a debt the subject of an assessment may be reviewable but it is statutorily correct for the purpose of a statutory demand.