Peter A Clarke

In Rescom Asia Pacific Pty Ltd v Reapfield Property Consultants Pty Ltd and Foxhat Employment Service Pty Ltd v Deputy Commissioner of Taxation the Victorian Court of Appeal and the Supreme Court considered applications to set aside statutory demands in very different circumstances.

Rescom Asia Pacific Pty Ltd v Reapfield Property Consultants Pty Ltd

The applicant sought leave to appeal a decision of Randall AsJ dismissing an application to set aside a statutory demand.  The grounds of appeal included a failure to find there was a genuine dispute or offsetting claim [2].

FACTS

The statutory demand relates to a claim for commission on the sale of various apartments in Carlton. The vendor retained Rescom as the underwriter for the sale of the apartments.  It was a term of the retainer that in the event that the total sale price of the apartments did not reach a pre-determined level, Rescom would pay the difference to the vendor [6]. If the total proceeds exceeded the predetermined level the vendor would pay the excess amount to Rescom. If the total proceeds exceeded a pre-determined level by a certain amount, then the excess would be shared between Rescom and the vendor [7].

Rescom engaged Reapfield as its sole marketing agent in Singapore on terms which included a 5% commission on the transacted price of all sales within Singapore[8].  The Agreement referred to a price schedule in an Annexure A of the agreement.

There was, and is, a dispute between the parties as to contents of Annexure A to the agreement with there being two schedules, one referring to lower prices than the other. That said Randall AsJ found he did not need to determine which schedule was incorporated into the agreement for the purpose of determining the application. Focusing on the terms of the marketing agreement and on contemporaneous conduct [9] he found that the agreement did not impose an obligation on Reapfield other than to use all due care, skill and diligence.  There were no consequences for failure by Reapfield to achieve a particular price [10].

Regarding the contemporaneous conduct the Randall AsJ found [16]:

• the vendor accepted offers made by purchasers procured by Reapfield and booking forms that set out the purchase price and were signed on behalf of Rescom [over the caption] “accepted by underwriter”
• email correspondence to the effect that Rescom “appreciated the good job” and that Rescom was in the “midst of arranging payment as promised”.
• text messages passing between Rescom and Reapfield accepting the invoice for the commissions claimed without complaint and advising that payment would be made when Rescom received draw downs “from equity partners.”
• there were over 20 text messages where Reapfield sought payment and Rescom repeatedly promised to make payment.
• No complaint was made about the invoice that set out the prices obtained for each of the apartments or the liability to pay the commission [17].

DECISION

The Court referred to and liberally quoted from the latest Court of Appeal authority on statutory demands, Troutfarms Australia Pty Ltd v Perpetual Nominees Ltd, handed down last year [3].  The key principles can be reduced to the following:

•  ‘a genuine dispute’ uses ordinary English words and its meaning in any particular set of circumstances must be a question of fact.
• it connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat.
• the court must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.
• no in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction.
• the company is required 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.
• there is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute.
• beyond a perception of genuineness (or the lack of it), the court has no function.

The Court found that the terms of the marketing agreement, viewed as a whole, support the judge’s reasoning [11] on the basis that:

• the principal obligations of Reapfield set out the nature of the retainer, the identity of the property, the term of the retainer (60 days) and the rate of commission (5%) and the entitlement to commission is expressed as a percentage of the “transacted price”[12];
• the vendor was required to provide exclusivity to Reapfield with regard to the sale of the apartments (until 22 April 2013), to offer purchasers reimbursement of legal fees (up to A$1,750) and stamp duty and to provide sales brochures, contracts, soft copies of images and information needed to facilitate the sale [13].
• the overall tenor of the section Conditions tends against a construction that imposes an obligation to sell at a stated minimum price [14].

The court found these indicia were consistent with and support a conclusion to the effect that the agreement does not impose an obligation on Reapfield to sell the apartments at a stated minimum price [15]. These findings  could be reconciled with the applicant’s affidavit to the effect that Reapfield was told that Rescom would not be paying the full amount of the commission and that the two companies should renegotiate the commission [18].  The Court also thought it and  it seemed fanciful that the type of text message exchange would occur had there been an underlying dispute about the selling prices [19].

In relation to the offsetting claim the Court noted that the Court below adopted  the language of Dodds Streeton in TR Administration Pty Ltd that it did not have “a sufficient objective existence and prima facie plausibility to distinguish it from…assertion.”  The Court agreed that the material was overly vague and would not permit a determination of an offsetting claim and even if the sale prices were at the predetermined level there would be no shortfall [27].

Foxhat Employment Service Pty Ltd v Deputy Commissioner of Taxation [2014] VSC 218

In Foxhat the applicant failed to set aside a statutory demand issued by the Deputy Commissioner of Taxation.  Normally a difficult task.

FACTS

On 30 July 2013 the Deputy Commissioner served a statutory demand, with accompanying affidavit, on the Foxhat pursuant to section 459E of the Corporations Act demanding payment of $905,505.40 [1]. The demands relate to:

• Running Balance Account (RBA) deficit debt owing as at 30 July of $814,495, being BAS instalments [2]; and
• Superannuation Guarantee Charges (SGC) for various quarters in the financial year 2008/2009 [3]

On 21 August 2013 Foxhat applied under section 459G to set aside the demand.  Foxhat alleged there was a genuine dispute [9]in respect of the:

• SGC charge debt because the assessments were not raised in good faith and were therefore not protected by the conclusive evidence provisions of s 75 of the Superannuation Guarantee Administration Act (SGAA). Foxhat raised objections to the assessments which resulted in some amendment for one quarter but the Deputy Commissioner otherwise maintained the assessments [12].  The Deputy Commissioner relied upon assessments and amended assessments [22].  At [13] – [19] & [36] the Court set out the specifics of Foxhat’s complaint against the Deputy Commissioner.  They were the bases for Foxhat’s submissions that the assessments did not reflect any rational assessment of liability or were issued with reckless indifference [35].  In short the Deputy Commissioner did not act in good faith [26], an onus which lay upon Foxhat to demonstrate [34]. The Deputy Commissioner submitted that the assessments are conclusive evidence under the SGAA [24] & [37]. Foxhat argued that the operation of section 75 is dependent upon the exercise of the power being bona fide [29] -[30].
• RBA component  because the debt is alleged to be the subject of a covenant not to sue evidenced by a letter of the Deputy Commissioner of 16 February 2011 [3].  The sum the subject of demand was not the issue.  Foxhat relied upon a letter dated 30 July 2010 where the Deputy Commissioner advising of an agreement to accept an arrangement for payment by instalments [52] and submitted that the letter is evidence of a settlement agreement [60] and the fact that he could issue a statutory demand in the fact of the agreement is a further illustration of a lack of good faith [61].

DECISION

As is his usual practice his Honour set out the broad principles regarding the meaning of a genuine dispute, here quoting Osborn in Troutfarms Australia Pty Ltd v Perpetual Nominees Ltd.

SGC Debt

His Honour referred, at [26 ] – [27], to the High Court decision in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41 which he summarised as finding that:

 ….production by the Deputy Commissioner of Notices of Assessment operates to conclusively demonstrate that the amounts and particulars in the assessments and declarations are correct, and that 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 to set aside a statutory demand

In considering the argument that the Deputy Commissioner’s exercise of power was not bona fide his Honour  noted, by extracting from authorities:

• an assessment which has been made in a bona fide attempt to exercise the power to make it is not invalid merely on account of a disconformity between the amounts assessed and the amounts properly assessable under the general provisions of the Act [31]
• to deny an assessment its validity it is necessary to show that it appears ex facie or from surrounding documentation that it is conditional or subject to revision or it appears  that the assessment has been issued by the commissioner knowing that it does not reflect any rational assessment of the taxpayer’s liability to tax, or with reckless indifference to whether it does or does not reflect any such assessment, or otherwise in bad faith [35]

His Honour found that Foxhat had not discharged its onus of establishing that the assessments were not carried out in good faith finding:

• whilst errors may have been shown in the production of the assessments that does not establish that the assessments have not been generated via a bona fide attempt to exercise the power under the SGAA.  The assessments are not invalid merely on account of differences between the amounts assessed and the amounts properly assessable [39].
• it has not been established that the Commissioner has raised the assessments knowing that they do not reflect any rational assessment of Foxhat’s liability, or alternatively, with ‘reckless indifference’ to whether it does or does not [39].
• it has not been established that there has been a conscious maladministration of the assessment process even though Foxhat had legitimate grievances with the quantum of the assessments [40].

RBA Debt

His Honour rejected Foxhat’s submissions on the basis that the Deputy Commissioner’s letter merely reveals the reason why, as of 16 February 2011 he had decided not to pursue the debt. It did not prevent him from bringing recovery action in the future. Even if the letter could be construed as an agreement or covenant not to sue it was not supported by consideration [62].

CONCLUSION

Rescom did not revolve around whether there was a misapplication of the appropriate test for a genuine dispute. The issue at first instance and on appeal was whether the applicant’s evidence was satisfactory.  The decision is a salient lesson in ensuring that the evidence is presented in as coherent and logical a manner as possible.  The bar may not be high but the Court must be satisfied as to the genuineness of the dispute.  The evidence did not support the submissions and fell far short of establishing a genuine dispute.

Foxhat highlights the significant difficulties in both going beyond the conclusiveness of an ATO assessment and establishing bad faith.