FEDERAL COURT OF AUSTRALIA

MNWA Pty Ltd v Deputy Commissioner of Taxation (No 2) [2015] FCA 1128

THE COURT ORDERS THAT:

1.    The application dated 26 September 2014 to set aside the statutory demand dated 4 September 2014 be dismissed.

2.    The interlocutory application dated 28 August 2015 be dismissed.

3.    The plaintiff pay the defendant’s costs of the proceeding, including the interlocutory application, as agreed or assessed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The application dated 26 September 2014 to set aside the statutory demand dated 5 September 2014 be dismissed.

2.    The interlocutory application dated 28 August 2015 be dismissed.

3.    The plaintiff pay the defendant’s costs of the proceeding, including the interlocutory application, as agreed or assessed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Introduction

1    These two proceedings were heard together. They both concern applications to set aside statutory demands under s 459G(1) of the Corporations Act 2001 (Cth) (Corporations Act). Both plaintiffs claim that the statutory demands should be set aside under s 459J(1)(b) of that Act because they contend:

(a)    the defendant promised on 10 April 2014 not to issue those demands until objection and review proceedings challenging the tax liabilities to which the demands related had ended on condition that the plaintiffs complied with their obligations as agreed at the meeting held on that day (the global deal) or, alternatively, the deals negotiated on 10 April 2014; and/or

(b)    the defendant’s conduct, in repeatedly threatening to issue statutory demands to coerce implementation of the global deal and to obtain other benefits, culminating in the making of the statutory demands, was not for the proper statutory purpose and was unconscionable.

Plaintiffs’ evidence summarised

2    Ms Bazzo’s affidavit: In the proceeding brought by Gucce Holdings Pty Ltd (Gucce), the plaintiff relied on an affidavit sworn by Ms Tina Bazzo, who is a director of Gucce and, with leave, was cross-examined. Gucce also relied on an affidavit sworn by Mr Allen Caratti in the proceeding brought by MNWA Pty Ltd (formerly Mammoth Nominees Pty Ltd) (MNWA).

3    Ms Bazzo and Mr Caratti are de facto partners. Ms Bazzo carries on property development activities through several entities, including Gucce, and Mr Caratti carries on similar activities through his own entities. Ms Bazzo said that their respective entities are owned and operated separately but that from time to time she and Mr Caratti help each other out by doing particular things on behalf of the other’s entities, such as when she deals with real estate agents on behalf of Mr Caratti’s entities.

4    Ms Bazzo outlined the history of the ATO’s interest in Gucce and other entities in which she has an interest. She described how, following an ATO audit of both Gucce and the Gucce Holdings Trust (of which Gucce was the trustee), the ATO issued garnishee notices to Gucce in relation to disputed tax liabilities. Gucce sought to have those notices set aside. The Commissioner subsequently commenced proceedings in the Supreme Court of Western Australia seeking an amount of approximately $5.5m. That sum represented the balance of Gucce’s running balance account which included disputed tax liabilities in respect of which objections had been lodged. After the Commissioner sought summary judgment in early 2014, Ms Bazzo paid $2m into Court in order to avoid summary judgment being granted.

5    Ms Bazzo described the discussions which she had with the ATO to seek to defer the summary judgment application pending determination of the objections. By consent, on 7 March 2014 the Supreme Court made orders staying the summary judgment proceeding on terms that contemplated that Gucce would make a proposal to the Commissioner for the provision of security over the balance of the disputed tax liability pending the outcome of any objection and review/appeal process (the Tomlin Orders).

6    Ms Bazzo took steps shortly thereafter to identify assets that could be pledged as security in relation to the balance of the disputed liability, being approximately $3.5m. She said that in April 2014, having identified sufficient assets, she prepared a letter to the ATO outlining a proposal.

7    Ms Bazzo also gave detailed evidence relating to what she described as “the global deal”, which she claimed Mr Caratti had entered into with the ATO in mid-April 2014. She gave Mr Caratti authority to negotiate on behalf of Gucce and various other of her entities.

8    It is unnecessary to set out at length Ms Bazzo’s evidence concerning the alleged “global deal” (or, alternatively, multiple deals) because Mr Caratti, who was directly involved in the negotiations with the ATO, describes these matters in some detail in his affidavit. It might be noted, however, that Ms Bazzo deposed that, on 10 April 2014, Mr Caratti telephoned her and said:

I have done a global deal with the ATO. This will bring an end to the garnishees, statutory demands and debt recovery actions. The companies and trusts will pay the small amounts, and security can be given for the larger amounts pending resolution of the objections and any appeals. I think this is the best way forward.

9    Ms Bazzo also deposed that she typed up some handwritten notes which Mr Caratti had taken at the meeting with ATO representatives on 10 April 2014. The notes were used to draft a letter to the ATO which set out specific issues that had been discussed in relation to several of the entities. The letter was then sent to the ATO.

10    Ms Bazzo described the steps she took thereafter to identify further assets which Gucce could pledge as security. She said that Mr Caratti complained to her several times that he believed that Mr Ross Burns from the ATO was not “sticking to the original deal”, because he wanted more security, as well as valuations, deeds of priority with the banks and information about the equity value of already mortgaged properties.

11    Ms Bazzo stated that she reluctantly agreed with Mr Caratti’s suggestion that she find assets to secure not only Gucce’s $11m debt to the ATO, but also to secure the taxation liabilities of two of Mr Caratti’s companies, MNWA and Whitby Land Company Pty Ltd (trustee for the Whitby Trust) (Whitby). She arranged for trusts and entities which she controlled to pledge security for Gucce, Whitby and MNWA. Deeds of Agreement dated 16 May 2014 and 31 July 2014 respectively were executed by Gucce and the Commissioner and MNWA and the Commissioner (the Gucce Deed and the MNWA Deed respectively).

12    Ms Bazzo gave evidence concerning other conversations which she had with Mr Caratti in mid-2014 concerning the ATO’s demand that it be provided with security in relation to an $8m debt which the ATO claimed Mr Caratti’s four daughters owed as beneficiaries of the Whitby Trust.

13    Finally, Ms Bazzo stated that she would not have agreed to Gucce providing security in relation to the disputed GST liabilities, or any of her other entities providing security in relation to the disputed taxation liabilities of MNWA and Whitby, if she had known that the ATO “would not abide by the agreement and representations made at and following the 10 April 2014 meeting”. She further deposed that Gucce and her other entities who had provided security had incurred significant costs and inconvenience in doing so and had reduced the ability of those entities to use those assets as security for other purposes.

14    Cross-examination of Ms Bazzo: There was a short cross-examination of Ms Bazzo which did not reveal anything of significance.

15    Mr Caratti’s affidavit: Mr Caratti swore an affidavit in support of MNWA’s application to set aside the statutory demand in relation to it. As noted above, his affidavit was also relied upon without objection in the Gucce proceeding. The Court granted leave for him to be cross-examined.

16    Mr Caratti is the sole director of MNWA. He described his business activities in carrying out property developments. Ms Bazzo delegated responsibility to him to negotiate terms on which Gucce and other entities which Ms Bazzo owned and controlled would participate in the alleged “global settlement” of tax disputes in April 2014.

17    Mr Caratti outlined the background to some long-running disputes which he and his companies had had with the ATO. He said that in the previous three years, the Commissioner had issued eight statutory demands to entities which either he or Ms Bazzo were directors of. In particular, he described actions which were taken by the ATO in relation to Gucce, Starbrake Holdings Pty Ltd (which was trustee of the Starbrake Holding discretionary trust) and Goldtune Investments Pty Ltd (Goldtune), some of which gave rise to litigation.

18    Mr Caratti said that in early April 2014 he had a conversation with Mr Burns of the ATO. He claimed that Mr Burns told him that the ATO was happy to work through debt recovery issues with Mr Caratti to see if a “global deal” could be done which resolved their issues while objection, review and appeal rights were being pursued. Mr Caratti said that he told Mr Burns that he would like to discuss doing a deal that resolved all the debt recovery issues for his and Ms Bazzo’s entities. They agreed to meet at the ATO’s offices in Brisbane on 10 April 2014.

19    Mr Caratti stated that Ms Bazzo gave him a written authority to negotiate with the ATO on behalf of Gucce and that she later extended that authority to include other entities with which she was associated. He said that Ms Bazzo told him to try to negotiate a global settlement with the ATO on 10 April 2014 and, if that failed, to hand to Mr Burns a letter which Ms Bazzo had prepared which contained an offer of security as contemplated by the orders made in the Supreme Court involving Gucce.

20    Mr Caratti gave detailed evidence of the meeting which he had in Brisbane on 10 April 2014 with Mr Burns and another ATO employee, Mr Amon-Ra Barton. He described his usual practice of recording in his notebook matters mentioned in meetings and telephone conferences. He said that he had made handwritten notes during the course of the meeting on 10 April 2014 and that he also had an independent recollection of the meeting. Copies of his notes were annexed to his affidavit.

21    Mr Caratti deposed that Mr Burns used the phrases “global deal” and “born-again taxpayer” several times throughout the meeting.

22    Mr Caratti said that he told Mr Burns and Mr Barton that he and Ms Bazzo were very interested in doing a “global deal to resolve all these issues while the objections and appeals are dealt with”. When he handed over to Mr Burns a copy of Ms Bazzo’s letter authorising Mr Burns to negotiate on behalf of Gucce, Mr Burns said that he needed written authorisation from Ms Bazzo for Mr Caratti to negotiate on behalf of other of Ms Bazzo’s entities which had “tax problems” and that there needed “to be a global deal that resolves all the issues we have with the businesses operated by you and Tina”.

23    Mr Caratti then gave detailed evidence of the discussions he had with Mr Burns at the meeting in relation to individual entities, including Gucce, MNWA and the Whitby Trust. He said that after they had discussed individual entities, he told Mr Burns that he thought that “we can do a global deal on those terms” they had discussed in relation to the individual entities. He said that Mr Burns responded by saying that the security arrangements for each of the taxpayers would have to be documented and that this should resolve all the current outstanding debt recovery disputes.

24    Mr Caratti claimed that Mr Burns told him during the course of the meeting that as long as Mr Caratti provided security in relation to the particular amounts specified by Mr Burns, no further recovery action would be taken “in relation to the issues that are currently under audit which may give rise to additional liabilities”. He also said that Mr Burns told him in relation to MNWA specifically that there were “currently other income tax and GST issues under audit in relation to [MNWA] but if those audits result in additional tax liabilities the Commissioner will not require you to give security over and above the security arrangement I have just outlined” and that their arrangement “is intended to cover security that would otherwise be required for those additional amounts”.

25    Mr Caratti gave evidence of the conversations which he had with Ms Bazzo after the April meeting, including the need for Gucce to give security in the amount of $11m (even though Ms Bazzo complained that its liability was only approximately $5.5m). He said he told Ms Bazzo that Gucce needed to give a higher amount of security because it was “part of the global deal” and that it would mean that the ATO would give a much better deal for the other entities.

26    Mr Caratti annexed to his affidavit copies of the Gucce Deed in relation to Gucce’s tax liabilities and the MNWA Deed concerning MNWA’s tax liabilities.

27    Mr Caratti gave evidence of various matters which, he said, confirmed that he and Mr Burns had done a deal on 10 April 2014, including subsequent emails, texts and calls to his mobile from Mr Burns. Later in his affidavit, however, Mr Caratti gave evidence of events which he said occurred “during the course of the implementation of the deal and finalizing details of entities that had not been directly dealt with at the meeting on 10 April 2014”. Those subsequent events included emails sent by Mr Burns on 14 May 2014 in respect of Piara Mews and Mr Caratti’s letter dated 14 August 2014 in relation to the liabilities of the Whitby Trust.

28    Mr Caratti gave evidence of him agreeing to Mr Burns’ demands for increased amounts of security which were made after the 10 April 2014 meeting. Mr Caratti said he agreed to the demands “because I considered that the benefit of maintaining an overall deal for all entities outweighed the cost and inconvenience of providing the additional security demanded”.

29    Mr Caratti described how Ms Bazzo agreed to involve some of her entities in providing increased security. This took another few months, during which time Mr Caratti claimed that Mr Burns told him that he was becoming impatient and intended to issue statutory demands to MNWA if progress did not improve. Mr Caratti deposed that he told Mr Burns that if statutory demands were issued the affected companies would be in breach of their banking covenants, which would raise a real risk that the banks could withdraw funding and cause the group real difficulties.

30    Mr Caratti gave detailed evidence of Mr Burns’ demand that security in the amount of $8m be provided in relation to taxation issues concerning the Whitby Trust, of which Mr Caratti’s four daughters were beneficiaries. The relevant discussions occurred in May 2014. Mr Caratti said that when Mr Burns demanded security for the Whitby Trust, he told him that this was in breach of their 10 April 2014 deal. Mr Burns had responded by saying that he did not agree that the 10 April agreement covered this item. He said that Mr Burns further told him that statutory demands would issue to MNWA and Gucce in respect of their GST and income tax liabilities respectively if the $8m security was not provided. He said that Mr Burns told him that he did not consider that those matters were covered by the Deeds. Mr Caratti said that he had insisted that Mr Burns was not being consistent with the global deal, but he agreed to give the security in order to protect his daughters.

31    Mr Caratti gave evidence of another telephone conversation which he had with Mr Burns in August 2014 in which Mr Burns raised the need for the trustee of the Whitby Trust to provide security to cover the possibility that the beneficiaries of the Whitby Trust might successfully challenge the relevant ATO assessments. Mr Caratti said that he again told Mr Burns that this latest demand was contrary to their deal. He said that Mr Burns responded by saying that he did not care about the deal, that he demanded the security and he threatened again to issue statutory demands not only to MNWA and Gucce but also to the Whitby Trust. Furthermore, he claimed that Mr Burns said again that these matters were not covered by the Deeds.

32    Mr Caratti annexed to his affidavit an ATO letter dated 2 September 2014 which alleged a default of the Gucce Deed. He said that the statutory demands to both Gucce and MNWA were issued in early September 2014 and before his lawyers responded on 8 September 2014 to the ATO’s 2 September 2014 letter.

33    Finally, Mr Caratti deposed that he would not have entered into the global deal or have provided security from MNWA in accordance with the MNWA Deed if he had known that the ATO would demand more security than that which he said had been agreed at the 10 April 2014 meeting. He said that it was Mr Burns’ representations at that meeting and subsequently which induced him to enter into the agreements and to involve Ms Bazzo and her entities in providing security. He said that he relied upon Mr Burns’ representations in arranging for the necessary security to be provided and that MNWA and the other entities which had provided security would suffer detriment if the Commissioner was allowed to “resile” from those representations.

34    Cross-examination of Mr Caratti: Under cross-examination, Mr Caratti repeatedly said that the agreement which he and Mr Burns reached at the meeting on 10 April 2014 was an agreement along the lines that, on payment of the required security, the Commissioner would stop all recovery action in respect of all the relevant entities for both their current and any future taxation liabilities which emerged from the audits. A critical issue is whether in fact the agreement(s) did extend to future liabilities and was not confined to existing liabilities as identified in the spreadsheet which Mr Burns used during the meeting (see further below).

35    I do not doubt that Mr Caratti holds a genuine subjective belief that he and Mr Burns entered into a binding legal agreement on 10 April 2014 which went beyond the terms of the Deeds which were subsequently executed. I found Mr Caratti generally to be a truthful and responsive witness. However, for reasons which will be developed below, I consider that his subjective belief is not supported by either relevant objective documentary evidence or by the evidence of Mr Burns and Mr Barton regarding the 10 April 2014 meeting, which I prefer. There is no doubt that there is much at stake for Mr Caratti (and also for Ms Bazzo). This may have subconsciously affected Mr Caratti’s perception of what occurred on 10 April 2014 and created a personal belief on his part that the negotiations covered a wider ground than they objectively did. I am not persuaded, however, that the broader binding agreement or agreements which Mr Caratti alleges were entered into on 10 April 2014 have been made out having regard to all the relevant evidence.

Defendant’s evidence summarised

36    Mr Burns’ affidavits: Mr Ross Burns is the Director, Strategic Recovery, Service Delivery (Debt) with the ATO in Brisbane. Mr Burns prepared three affidavits and was cross-examined. His affidavits were in response to that of Mr Caratti. Mr Burns’ third affidavit was affirmed in the course of the initial two-day hearing and was in response to the plaintiffs’ new case as outlined in their document entitled “Plaintiffs’ summary of case” (see [87] below). Mr Burns gave more extensive evidence concerning his recollections of what was said and agreed in principle at the 10 April 2014 meeting. His evidence in chief may be summarised as follows.

37    Mr Burns said that he asked Mr Barton to prepare a statement of the established tax debts of each of the entities who are the subject of a tax operation with the ATO codename “Operation Caballus”. Mr Burns also said that he was vaguely aware of some audit activity in respect of these entities and that there may also have been some unreported or under-reported tax liabilities. But he said that he did not ask Mr Barton to try to estimate any liabilities that were not on the ATO’s information systems. He described how, during the course of the meeting, he frequently referred to the figures in the spreadsheet as he discussed individual entities with Mr Caratti. For example, he said that when they began discussing Gucce, he referred to the spreadsheet to ascertain the presently-established debt owed by Gucce. He told Mr Caratti that the ATO’s system showed that Gucce had a GST liability of approximately $11m. He told Mr Caratti that he would agree to cease recovery action in respect of that $11m (other than a specified garnishee) if Mr Caratti gave him mortgages over real estate with equity of at least $11m.

38    Mr Burns said that when Mr Caratti asked him whether he could do something about all the audit activity, he responded by saying that the auditors had a job to do and that he did not control them. He said that he also told Mr Burns that they were only dealing with established debts and that they could deal with any future liabilities once they became known. He said that when he referred to “established debts” he pointed to the spreadsheet. He said that Mr Caratti responded by saying: “Ok. I agree”. I accept that evidence.

39    Mr Burns said that he also told Mr Caratti that he required him to make monthly payments to cover the GIC (General Interest Charge) that would accrue on the $11m debt (a figure of $68,000 per month is recorded in the Gucce Deed in respect of this matter).

40    Mr Caratti described how brief mention was made of MNWA at the meeting before the discussion moved on to Whitby. It was only after “heads of agreement” were reached in respect of the established $5.2m of the Whitby debt that MNWA was further discussed. Mr Burns said that he pointed to the spreadsheet and told Mr Caratti that, according to it, MNWA had a debt of $21.6m in income tax. He said that Mr Caratti described that assessment as “completely bogus”. He said he told Mr Caratti that MNWA was required to provide mortgage security of $2m to cover the known $21.6m in income tax assessment liabilities, and that it would also be required to provide an additional $2m each year until the objections in relation to the $21.6m were finally determined. He told Mr Caratti that the ATO would not commence recovery action in respect of the $21.6m if the security was provided. I accept that evidence.

41    Mr Burns said that each entity was discussed independently of the others during the course of the meeting. He said that the participants only ever addressed the debts which were established on the ATO information systems as reflected in the spreadsheet figures prepared by Mr Barton.

42    Mr Burns said that he was certain that neither he nor Mr Caratti used the word “global” at the meeting. He said he was equally certain that nobody at the meeting was under the misapprehension that they were discussing provision of security for one or more entities so as to achieve a respite from recovery action in respect of all of the entities as some sort of a package deal. Furthermore, he said he was “absolutely certain” that the negotiations and heads of agreement reached at that meeting were only in respect of established debts which were reflected on the spreadsheet. I accept that evidence.

43    Mr Burns said that at the end of the meeting he told Mr Caratti that he would draft deeds to reflect the terms of each head of agreement, but that he needed further details about collateral property for that to occur. He said that he also told Mr Caratti that, to avoid confusion, “there are no agreements until each respective Deed is executed”. I accept that evidence.

44    Mr Burns also gave evidence of how by early August 2014 Mr Caratti had not furnished the required security for the Whitby Trust. He said that he warned Mr Caratti that if he did not continue to progress security deeds for each relevant entity, he would commence recovery action in respect of the outstanding amounts and, in the case of companies that owed tax liabilities that were not sufficiently solvent to pay, he would issue s 459E statutory demands.

45    In an earlier affidavit, Mr Burns deposed that he had been involved since July 2010 in attempts to collect various taxation debts in excess of $175m owed by various entities associated with Mr Caratti and Ms Bazzo. Mr Burns confirmed that he met with Mr Caratti in April 2014 to negotiate a resolution of the taxation debts in respect of these taxpayers. However, he denied saying to Mr Caratti that he did not care about the deal. Mr Burns said that he told Mr Caratti that:

The deals negotiated on 10 April 2014 did not include further taxation liabilities that arose after that date, including those of the Whitby Trust.

I accept that evidence.

46    Mr Burns annexed to this affidavit handwritten notes of the 10 April 2014 meeting which were taken by his ATO colleague, Mr Barton. Mr Burns deposed that the notes reflected his own recollection of the meeting.

47    Mr Burns disagreed with Mr Caratti’s characterisation of the deals which were negotiated on 10 April 2014 as a “global settlement”.

48    Cross-examination of Mr Burns: Mr Burns was subjected to a lengthy cross-examination by Mr Robertson QC, who appeared for the plaintiffs (together with Mr Peadon).

49    Mr Burns was asked as to why he had not previously corrected things with which he disagreed in Mr Caratti’s affidavit. He explained that he did not think at the time that they were significant. I would not draw any adverse inference from the fact that these matters were not raised until the plaintiffs’ new case belatedly emerged and Mr Burns prepared his third affidavit.

50    In response to questions about his preparation for the 10 April 2014 meeting, Mr Burns said that he asked Mr Barton to ascertain the established tax liabilities of the relevant entities. He said that he was not involved in gathering that information which was presented to him in a spreadsheet prepared by Mr Barton. He said that he assumed that Mr Barton had obtained the necessary information from the ATO tax systems, all of which he said only contained information relating to established tax liabilities and not possible future liabilities (including estimates or predictions). That evidence is accepted.

51    Mr Burns was cross-examined at length regarding the “exceptional powers” available to the ATO in debt recovery, including the power given to it in 2010 under s 255-100 of the Taxation Administration Act 1953 (Cth) (TAA) to demand security bonds for predicted liabilities which had not yet been assessed. He said that he had been involved in 56 occasions when this power had been used. He accepted that a security bond had been the subject of earlier litigation in early April 2014 brought by Goldtune against the ATO. This provided the genesis for the discussion he had with Mr Caratti to meet in Brisbane to seek to avoid the then existing problems in the parties’ relationship.

52    It emerged in cross-examination that Mr Burns had prepared an internal written report on the meeting, on 11 April 2014, i.e. the day after the 10 April 2014 meeting. The document is entitled the “Executive Brief”. It was produced under a notice to produce. Mr Robertson QC tried to make something of the fact that this report had not been annexed to any of Mr Burns’ affidavits. I would not draw any adverse inference, particularly when it is evident that the report substantially supports Mr Burns’ version of events and, in particular, that the agreements which were made at that meeting were in respect of existing and known tax liabilities of the individual entities, as is reflected in the tables set out in the Executive Brief in relation to each entity. It might also be noted that it later emerged from an affidavit prepared by another ATO officer (Ms Harako) in proceedings in the Supreme Court of Western Australia in May 2014 involving Gucce, which was tendered by the plaintiffs in these proceedings, that Gucce had been provided with a redacted copy of the Executive Brief at around that time (see further below). Accordingly, Gucce at least was not caught by surprise when the document became available in these proceedings.

53    Mr Burns was cross-examined at some length about the fact that predictive estimates had been made of Goldtune’s future taxation liabilities. It was put to him that this experience must have created a concern on the part of Mr Caratti which he would have bought with him to the 10 April meeting. At first Mr Burns accepted that Mr Caratti had a concern about liabilities which were yet to be assessed but he said that his own focus was on established liabilities. That evidence is supported by the Executive Brief. I accept it.

54    Mr Burns was cross-examined regarding the Whitby Trust. The object seemed to be to have him confirm that he made threats to issue statutory demands against the plaintiffs in the context of his dissatisfaction with progress relating to security for the Whitby Trust and the position of the beneficiaries. He denied that the level of security from Gucce was linked to the security he wanted for MNWA. He explained he did not know early in the meeting what would emerge later in the meeting relating to MNWA because they had discussed Gucce first. He said that the link only came when the meeting progressed to talk about MNWA. He said that there was discussion at the meeting that, if as a result of the objection processes or whatever the taxation liabilities of any of the entities reduced, consideration would be given to allowing alternative security for a lesser value to be substituted or, if the liabilities reduced to zero, to release the securities completely.

55    Mr Burns was adamant (he said that he was “sure”) that there was no discussion at the meeting about the possibility that the spreadsheet figures were wrong. He also explained what he meant by “born-again taxpayer”, a phrase which he said he used only once during the meeting. He said that what he meant by the expression was that Mr Caratti could turn over a new leaf and put himself on a better footing with the ATO if agreement could be reached. He said that his position also was that if any further and additional tax liabilities emerged after 10 April 2014, there would need to be further similar deals struck relating to security. I accept that evidence.

56    Mr Burns was cross-examined about emails which were sent after the meeting when it emerged that MNWA also had a GST liability of $23m. He said that this emerged when the Deed was being drafted and that he was displeased when Mr Caratti’s solicitor tried to introduce this new liability into the draft Deed. He described it as a “trying it on” attempt to add $23m in GST debt on top of the income tax liability which was then the subject of the draft Deed. He accepted that interest was added to the amounts in the spreadsheet for the purposes of the final deeds but he said that otherwise no account was taken of any future amounts for which the entities might become liable. Mr Burns said that he was positive that there was no prediction of any future liability for the purposes of the 10 April meeting and that he would know if any forecast had been done by the ATO, which there was not. I accept that evidence.

57    Mr Burns was taken to Mr Caratti’s handwritten notes of the telephone conversation they had relating to the Whitby Trust and the threat made by Mr Burns to issue statutory demands to the plaintiffs. He accepted that he said that he was prepared to have statutory demands issued to those companies in respect of tax liabilities which were not the subject of the Deeds if Mr Caratti stopped co-operating. He said that it was around this time that he perceived there was a pattern of a lack of cooperation emerging. He said that there was no deed with MNWA at this time. He was taken to an email dated 18 June 2014 in which his opposition to the attempts to add the $23m GST liability into the draft Deed was discussed. There is a statement at the end of his email there that he would use his s 459E power. I do not see anything improper in that.

58    Mr Burns was also taken to an email dated 13 June 2014 which records his frustration with the lack of delay in finalising the MNWA Deed.

59    In re-examination, Mr Burns was shown an email dated 8 August 2014 relating to the Whitby Trust in which he confirmed that he was not constrained by the Deed in relation to the $24m of income tax liability which had subsequently been assessed.

60    I found Mr Burns to be an impressive witness. He gave his evidence truthfully, frankly, responsively and confidently. He struck me as a more reliable and objective witness than Mr Caratti and I would prefer Mr Burns’ evidence where they are in dispute. It is also significant that Mr Burns’ evidence was substantially supported by that of Mr Barton. There is no reason to believe that they were not both telling the truth.

61    Mr Barton’s affidavits: Mr Amon-Ra Barton, another ATO officer, gave evidence as to the ATO’s accounting systems and his role as a debt recovery officer, including his attendance at the meeting on 10 April 2014 during which he took detailed notes. Mr Barton explained that he has worked with Mr Burns in the ATO’s debt recovery area since February 2009.

62    In his first and second affidavits, Mr Barton explained the basis upon which it was claimed that both plaintiffs were in debt to the Commissioner in the particular amounts set out in the respective statutory demands.

63    Mr Barton also affirmed a third affidavit, dated 11 September 2015, which related primarily to the plaintiffs’ new case which had emerged in opening. He annexed to that affidavit the handwritten notes which he had taken at that meeting.

64    Mr Barton was cross-examined at some length. He confirmed that he prepared the spreadsheet and it contained figures which reflected the tax liabilities of the relevant entities which were used by Mr Burns during the course of the meeting. He explained that he had extracted the figures from the ATO’s information systems. He acknowledged that he was aware that an amended assessment had issued to MNWA on 17 April 2014 but he explained that he did not include the amount the subject of that amended assessment in the spreadsheet because it only emerged after the meeting. Thus the figure would not have been included in the ATO’s information systems which he had used to prepare the spreadsheet prior to the meeting.

65    Mr Barton also stated that, as at 10 April 2014, he was not aware of the existence of any alternative assessments which affected either of the plaintiffs.

66    Mr Barton confirmed that he was instructed by Mr Burns to defer taking any recovery action in respect of either of the plaintiffs after the 10 April 2014 meeting as long as Mr Caratti conducted good faith negotiations. I accept that evidence.

67    Mr Barton confirmed that he had no involvement in the preparation of the Executive Brief which summarised the meeting on 10 April 2014 but he did receive a copy of it. When he was asked why he did not make any reference to the Executive Brief in any of his affidavits, he said that it had not occurred to him to do so.

68    Mr Barton was then asked whether he recalled Mr Burns using the word “DEFCON” during the course of the meeting. He said that he did have that recollection. He explained that he understood the word to mean that if suitable arrangements were not able to be agreed the ATO would escalate its debt recovery actions to the highest level. He confirmed that this did not simply mean stage 3 of debt collecting as identified in the ATO’s formal policies, but that it could involve far more serious action. He said that it was the equivalent of “the nuclear option” and could include criminal proceedings. Mr Barton confirmed that the concept of “DEFCON” is not covered in any formal ATO policy.

69    Mr Barton also acknowledged that he recalled Mr Burns using the phrase “born-again taxpayer” at least once during the 10 April 2014 meeting. Mr Barton was then asked whether he had any recollection of hearing Mr Burns using the phrase “established taxation liabilities” in that meeting. Mr Barton hesitated when he was asked this question and then said that he believed that the phrase had been used. Shortly thereafter, however, Mr Barton said that he had no recollection of having heard the word “established” used in the meeting. When it was put to him that there appeared to be an inconsistency in his answers on this matter, he confirmed that he had no recollection of the word “established” being used.

70    Mr Barton rejected the suggestion that Mr Burns had used the word “established” in response to the reference made by Mr Robertson QC in his opening address to the fact that the GST liabilities of MNWA would not have been recorded in any assessment. Mr Barton said that he and Mr Burns had never discussed the word “established” in the context of the proceeding. I accept that evidence.

71    Mr Barton was also asked whether he recalled any reference to the word “global” at the meeting. He said that that word had not been used and that he would recall if it had because it is an unusual word. He explained that he regarded the word “established” as normal parlance, whereas the word “global” was different and he said that its use would have piqued his interest. I accept that evidence.

72    Mr Barton also recalled Mr Burns saying at the meeting that there were no agreements until the Deeds were executed. That evidence is also accepted.

73    Mr Barton was asked whether he recalled Mr Burns telling him that he was prepared to use statutory demands if Mr Caratti’s daughters did not provide security in respect of their taxation debts as beneficiaries under the Whitby Trust. He said he had no such recollection. I accept that evidence.

74    I found Mr Barton to be an honest, responsive and dispassionate witness. The only minor qualification relates to the inconsistent answers which he gave concerning whether or not Mr Burns used the phrase “established taxation liabilities” or the word “established” during the course of the 10 April meeting. I accept Mr Barton’s subsequent answers that he has no recollection of those expressions being used. I do not regard his change of evidence on this matter as being significant or to cast doubt on his overall credibility.

Plaintiffs’ rebuttal evidence

75    Mr Robertson QC sought to tender an affidavit sworn by another ATO officer, Ms Yen-Lin Faith Harako. The affidavit was dated 5 May 2014 and had apparently been filed on behalf of the Commissioner in proceedings in the Supreme Court of Western Australia relating to Gucce. The affidavit was admitted into evidence over an objection by the defendant in circumstances where Mr Robertson QC confirmed that the only use which he intended to make of it was to show that the notion of there having been a “global settlement” at the 10 April 2014 meeting was a matter of “common currency” within the ATO. In both the body of the affidavit and in a letter written by the deponent in May 2014, the deponent (who did not personally attend the 10 April 2014 meeting) referred to an agreement having been reached there, which she described as the “Global Settlement Agreement”.

76    I will have something more to say about this affidavit below.

Leave to cross-examine

77    As noted above, cross-examination of various witnesses was conducted with the Court’s leave. It is convenient to now explain why such leave was granted.

78    By an interlocutory application dated 28 August 2015 the plaintiffs sought orders that there be no cross-examination of witnesses at the hearing of the applications on 10 and 11 September 2015 and, alternatively, leave to cross-examine should be limited to specific topics identified by the Court. The parties filed brief written submissions in respect of the interlocutory applications which, by consent, were heard and determined on the papers. On 4 September 2015 the parties were advised that leave was granted to cross-examine witnesses and that the Court would exercise its usual control and supervision of any such cross-examination. The parties were also advised that reasons would be included in the final reasons for judgment.

79    It is well established that leave to cross-examine witnesses will generally not be granted in a proceeding in which it is sought to have a statutory demand set aside on the basis of a claim that there exists a “genuine dispute” concerning the subject debt (see, for example, Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 (Mibor) at 292 per Hayne J; Trecomax Pty Ltd v Prentice [2004] FCA 1057; (2004) 50 ACSR 314 at [25]-[28] and [33]-[35] per Sackville J; United Capital Properties Pty Ltd v Handbury Asset Management Pty Ltd [2011] FCA 1075; (2011) 86 ACSR 161 at [12]-[17] per Stone J; Pharmanet Group Limited v Primelane Pty Ltd [2015] FCA 208 at [25]-[30] per McKerracher J and PrimeSpace Pty Investment Ltd v Vienne Pty Ltd [2015] FCA 326 at [16] per Griffiths J).

80    The general principle recognises that there may be exceptional or rare cases where it is appropriate that leave be granted to cross-examine in such a case. A recent example of leave being granted in a case involving inter alia a genuine dispute claim is Wollongong Coal Limited v Gujarat NRE India Pty Ltd [2015] FCA 221; (2015) 230 FCR 28 at [72]-[79] per Wigney J.

81    Significantly, however, in the present proceedings the plaintiffs’ applications to set aside the statutory demands are not based on a genuine dispute claim but, rather, as previously stated, are solely focused on a claim that there is “some other reason” under s 459J(1)(b) of the Corporations Act to set aside the statutory demands.

82    The plaintiffs carry the onus of establishing on the balance of probabilities that there is “some other reason” why the demands should be set aside. The Court must be satisfied that the “other reason” exists at the time the s 459J application is heard and determined (see Tatlers.com.au Pty Ltd v Davis [2006] NSWSC 1055; (2006) 203 FLR 473 at [11]-[13] per Barrett J).

83    It was evident from the affidavit evidence filed on behalf of all the parties in the proceedings that there was a significant dispute concerning the existence of any “global deal” and, if it existed, what were its terms and conditions. In particular, the Deputy Commissioner disputed Mr Caratti’s description of the arrangements which were negotiated by the parties on 10 April 2014 as a “global settlement”. Equally significantly, it was evident that the parties were in dispute as to the terms of various alleged representations made by Mr Burns to Mr Caratti. It seemed unlikely that these disputes were capable of being resolved simply by reference to the terms of the Deeds which were subsequently executed.

84    In those circumstances, leave was granted to cross-examine witnesses. Rather than specifying in advance specific issues to which such cross-examination must relate, as sought by the plaintiffs, it was considered sufficient to rely upon the Court’s usual powers to control and supervise any cross-examination to ensure that it was confined to relevant issues and was otherwise in conformity with the “overarching purpose” identified in ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth).

85    For these reasons, the plaintiffs’ interlocutory applications were dismissed.

Plaintiffs’ submissions summarised

86    The plaintiffs filed outlines of written submissions in chief and in reply as well as supplementary submissions which were provided in advance of the resumed hearing. The defendant filed two sets of written submissions in response.

87    At the commencement of the hearing, Mr Robertson QC handed up a written document entitled “Plaintiffs’ summary of case” which differed in some significant respects from the plaintiffs’ earlier written submissions. Mr Robertson QC stated that this written summary replaced the earlier submissions. Ms Foda, who appeared for the Deputy Commissioner, sought and was granted an adjournment to enable the defendant to give consideration to the plaintiffs’ new case, including possibly adducing further evidence (see MNWA Pty Ltd v Commissioner of Taxation (No 1) [2015] FCA 1011).

88    The plaintiffs’ summary of case document identified the following two grounds upon which the statutory demands were sought to be set aside:

(a)    the defendant promised at the 10 April 2014 meeting, either as part of the “global deal” or as part of separate deals negotiated on that day, not to issue the statutory demands until Pt IVC proceedings in respect of the tax liabilities to which the demands related had ended as long as the plaintiffs complied with their obligations under the global deal or those separate deals; and

(b)    the defendant’s conduct in repeatedly threatening to issue statutory demands to coerce implementation of the global deal or the separate deals and to obtain other benefits, which culminated in the issuing of the demands, was not for the proper statutory purpose and was unconscionable.

89    It was submitted that the defendant was incorrect in maintaining that the agreements reached on 10 April 2014 did not include further taxation liabilities that arose after that date. That was said to be wrong because:

(a)    in relation to MNWA, the GST amounts demanded of it for periods up to 30 June 2011 were, as at 10 April 2014, debts due to the Commonwealth and payable to the Commissioner, having regard to the definition of tax-related liabilities in Sch 1 of the TAA; and

(b)    in relation to Gucce, the income amounts demanded were for years prior to 10 April 2014 and so were present taxation liabilities of Gucce as at that date, even though they were not tax-related liabilities as defined until they were assessed (citing Commissioner of Taxation v H [2010] FCAFC 128; (2010) 188 FCR 440 (H)).

90    The plaintiffs also submitted that, notwithstanding that they were seeking to have the statutory demands set aside under s 459J(1)(b), the onus they carried was the same as that carried by a person who relied on s 459H(1)(a) of the Corporations Act, citing Finklestein J’s decision in NT Resorts Pty Ltd v Deputy Commissioner of Taxation [1998] FCA 255; (1998) 153 ALR 359 (NT Resorts) and that of Sulan J in Total Beverage Australia Pty Ltd v Corporate Link Australia Pty Ltd [2013] SASC 45 (Total Beverage).

91    On the issue of the proper construction of the alleged oral “global deal”, the plaintiffs submitted that the terms of, and precise subject matter of, that oral agreement were to be determined by reference to the words used by the parties and reasonable inferences from all the surrounding circumstances (citing McRae v Commonwealth Disposals Commission [1951] HCA 79; (1951) 84 CLR 377 (McRae)). The Court was urged to accept Mr Caratti’s evidence as to what was said at that meeting which, the plaintiffs submitted, was not contested by Mr Burns save for his challenge to Mr Caratti’s “characterisation” of the global deal.

92    The plaintiffs submitted that Mr Burns’ evidence was that, subsequent to the meeting on 10 April 2014, he told Mr Caratti that the deal did not concern tax liabilities after 10 April 2014, however, such post-contractual assertions are irrelevant (citing Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165).

93    The plaintiffs contended that the subject matter of the global deal was in respect of the taxation liabilities that were under audit for tax periods before 10 April 2014 and which were in dispute and that their construction of the global deal, which they submitted was reasonable and arguable, was sufficient to meet the relevant test and discharge the onus under s 459J(1)(b). They submitted that their construction was to be preferred to that of the defendant, whose construction would allow him to issue penalty assessments and impose interest charges in respect of the underlying disputed taxes and take enforcement action to recover those disputed amounts in respect of further taxation liabilities after 10 April 2014.

94    The relevant surrounding circumstances relied upon by the plaintiffs in support of this contention were that:

(a)    various entities controlled by the plaintiffs were under audit for prior tax periods;

(b)    these entities were constantly in dispute with the defendant in respect of the correctness of their taxation liabilities;

(c)    the very purpose of the meeting on 10 April 2014 was to seek to agree a broad arrangement which would enable the taxpayers to progress their Pt IVC proceedings and the Commissioner would not seek to recover taxation debts as long as adequate security was provided (a matter which was confirmed in Mr Burns’ Executive Brief which was written after the meeting); and

(d)    the parties effectively wanted to reach a truce whereunder the taxpayers could get on with their businesses and contest the correctness of their taxation liabilities, while the Commissioner could be satisfied with a certain level of security for each taxpayer.

95    Alternatively, if the defendant’s construction of the global deal was correct, with the consequence that its subject matter was confined to tax liabilities existing at 10 April 2014, the plaintiffs submitted that:

(a)    the principal tax liabilities demanded were in existence at that time because:

(i)    in the case of MNWA, s 105-15 in Sch 1 of the TAA applied; and

(ii)    in the case of Gucce, H applied to its income tax liabilities.

96    The plaintiffs further submitted that if Mr Burns had the mistaken belief as to what those taxation liabilities were, or their amount, that would be irrelevant to the defendant’s obligations and would simply constitute a unilateral mistake on his part (citing McRae and Solle v Butcher [1950] 1 KB 671 at 692 per Denning LJ).

97    In his closing oral address, Mr Robertson QC drew attention to the definitions of “Taxation Debt”, “Objection process” and “Determination of the Objection Process” in the respective Deeds. In the Gucce Deed, “Taxation Debt” was defined to mean:

(a)    the tax-related liabilities and applicable GIC due and payable by the Taxpayer as at 6 May 2014, being the amount of $10,795,673.13 subject to a reduction by the Cash Security upon its release to the Commissioner, and

(b)    the amount of any additional GIC which accrues on or after 6 May 2014 on those tax-related liabilities,

subject to any adjustment to those amounts by virtue of the Determination of the Objection Process.

98    In the MNWA Deed, “Taxation Debt” was defined to mean:

(a)    the tax-related liabilities arising from the income tax assessments for the 2010, 2011, 2012 and 2013 income tax years and applicable GIC due and payable by the Taxpayer as at 16 June 2014, being the amount of $30,736,752.69, and

(b)    the amount of any additional GIC which accrues on or after 16 June 2014 on those tax-related liabilities,

subject to any adjustment to those amounts by virtue of the Determination of the Objection Process.

99    In the Gucce Deed, “Objection process” was defined to mean various processes under Pt IVC of the TAA, as well as any relevant proceedings in the Full Federal Court or High Court. There was a similar definition in the MNWA Deed. In the Gucce Deed, “Determination of the Objection Process” was defined by reference to objection decisions in relation to specified taxation periods commencing at 1 July 2009 and ending on 28 February 2014, as well as any subsequent Pt IVC proceedings and subsequent appeals. In the case of MNWA, the concept was defined by reference to objection decisions in respect of objections which were to be lodged by MNWA in respect of assessments for the 2010, 2011, 2012 and 2013 financial years, as well as subsequent Pt IVC proceedings and subsequent appellate proceedings.

100    Mr Robertson QC emphasised that Pt IVC proceedings could result in the companies’ taxation liabilities changing from the figures specified in the respective definitions of “Taxation Debts” and that any amended assessments which issued as a result of those processes would involve an increase in the taxpayer’s existing liabilities, rather than give rise to a separate new liability (citing Commissioner of Taxation v Stokes (1996) 72 FCR 160).

101    Mr Robertson QC submitted that Mr Burns had “hoodwinked” Mr Caratti by demanding his agreement to include in the Taxation Debt for MNWA an amount of approximately $10m on top of the approximate $20m figure which had been agreed as the taxation liability at the 10 April 2014 meeting. He submitted that Mr Caratti agreed to pay increased security in the amount of $3m in respect of MNWA even though Mr Caratti believed that the $2m security which he had agreed to pay at the 10 April 2014 meeting would include all audit activities and future liabilities and not simply the figures disclosed in the spreadsheet that was used by Mr Burns.

102    Mr Robertson QC confirmed that the plaintiffs’ case was based on the second category in the analysis in Masters v Cameron [1954] HCA 72; (1954) 191 CLR 353 (Masters v Cameron). He submitted that the Court should find that the parties intended to be bound immediately by the agreements which they reached at the 10 April 2014 meeting but that they wished a more formal document to be draw up to reflect their agreement(s). Mr Robertson QC urged the Court not to accept Mr Burns’ evidence that he told Mr Caratti during the course of the meeting that there was no agreement until the Deeds were executed.

103    Mr Robertson QC submitted that the Deeds were consistent with Mr Caratti’s evidence concerning the nature and extent of the agreement(s) reached by the parties at the meeting. In particular he pointed to the fact that the taxation periods covered by the Deeds also covered the relevant periods under audit. He also relied on other matters, including the level of security which was paid and the parties’ understanding that the ultimate taxation liability could change depending on the outcome of the Pt IVC proceedings.

104    The second limb of the plaintiffs’ case was described as “one of contractual construction and, if necessary, equitable intervention”. This limb turned on the contention that the defendant remained bound by the global deal in respect of those taxpayers who had not yet entered into security deeds and in respect of the tax liabilities which were not specifically covered by the existing Deeds. The plaintiffs submitted that the Commissioner could not in good faith recover tax liabilities which were caught by the global deal.

105    The plaintiffs also contended that if, on their proper construction, the Deeds did supercede the global deal, it would be inequitable for the defendant to rely on them because Mr Burns imposed, by threat, his wrong subjective belief of the global deal on Mr Caratti. This, and other matters relied upon by the plaintiffs, were said to be sufficiently plausible to provide an adequate basis for setting aside the demands and it was unnecessary for them to be finally determined at this stage of the proceeding.

106    The plaintiffs also submitted that the history of Mr Burns’ threats to use statutory demands for collateral purposes warranted the demands being set aside, relying on Deputy Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23; (1995) 183 CLR 168 at 201-202 per Brennan J and at 217 per Dawson J; Edelsten v Wilcox and Commissioner of Taxation (1988) 15 ALD 546 (Edelsten) and Lifese Pty Limited v Lee Crane Hire Pty Ltd [2012] FCA 302 (Lifese).

107    Mr Robertson QC submitted that the Court should find that Mr Burns had a history of threatening to use statutory demands against particular taxpayers in order to advance the Commissioner’s interests in respect of one or more third party taxpayers, contrary to Edelsten. He submitted that this was the case with the Whitby Trust because Mr Burns had threatened to issue statutory demands against Whitby unless Mr Caratti’s daughters gave appropriate security. Mr Robertson QC initially submitted that Mr Burns had made an admission in his cross-examination that he threatened Mr Caratti with statutory demands against both the plaintiffs if appropriate security was not provided by his daughters. He also submitted that Mr Caratti’s notes of the 10 April 2014 meeting confirmed that Mr Burns had threatened to issue statutory demands to the plaintiffs if appropriate security was not provided in respect of the Whitby Trust.

108    As will emerge below, I do not accept Mr Robertson QC’s submission that Mr Burns made an admission in the terms claimed, or that Mr Caratti’s note provides an adequate probative basis for what amounts to a very serious allegation of an abuse of power by Mr Burns.

109    Later in his oral address, Mr Robertson QC clarified that his submission on this issue was more accurately expressed in narrower terms of Mr Burns having a “modus operandi” which involved threats to use statutory demands in unauthorised circumstances.

110    Finally, the plaintiffs submitted that the Court should find the evidence of both Mr Burns and Mr Barton to be unreliable. He submitted that Mr Barton’s credibility was affected by such matters as his acknowledgment that he had read Mr Burns’ affidavit at some time, they had discussed their evidence at length before the trial, there were inconsistencies in his recollection of particular words or phrases being used at the 10 April 2014 meeting, and he was unable to explain why he had not referred to the Executive Brief in his affidavit even though, so it was submitted, it confirmed Mr Caratti’s case that the purpose of the 10 April 2014 meeting was to settle all taxation debts.

Defendant’s submissions summarised

111    The primary submissions made on behalf of the defendant may be summarised as follows.

112    The plaintiffs carry the burden of establishing on the balance of probabilities that there is “some other reason” within the meaning of s 459J(1)(b) of the Corporations Act to set aside the demands. Furthermore, the defendant challenged the plaintiffs’ argument that it was sufficient if the Court found that there was “some other reason” which was “reasonable and arguable” or “plausible” on the basis that the authorities relied upon by the plaintiffs had no application because this was not a genuine dispute case.

113    In closing address, Ms Foda confirmed that the defendant’s position was that no binding agreement was reached at the 10 April 2014 meeting: the only binding agreements between the parties are reflected in the Gucce and MNWA Deeds. On that basis, the defendant submitted that it was unnecessary and irrelevant to consider the negotiations which took place on 10 April 2014. Reliance was placed on Mr Burns’ evidence on this matter, including his statement to Mr Caratti to the effect that, to avoid any confusion, “there are no agreements until each respective Deed is executed”. The defendant contended that the only relevant agreements between the parties were those contained in the subsequently executed Deeds.

114    In their closing written submissions, the defendant contended that if the Court found that some agreement was reached on 10 April 2014 it was confined to the then established tax liabilities of the two entities. Emphasis was placed upon Mr Burns’ evidence and his reliance upon the spreadsheet during the course of that meeting, which itself was confined to existing liabilities. Accordingly, the heads of agreement were only in respect of established debts that were reflected in that spreadsheet. The defendant contended that this proposition was supported by material such as Mr Caratti’s notes of the meeting, his letter of 11 April 2014, Mr Burns’ written and oral evidence, Mr Barton’s notes of the meeting, the Executive Brief subsequently prepared by Mr Burns, and the terms of the respective Deeds themselves.

115    Turning to the terms of those Deeds, the defendant emphasised the following points:

(a)    neither Deed contained any reference to there being a “global deal” or that recovery action would be deferred in relation to liabilities of the taxpayers that were the subject of audit as at 10 April 2014 or that any terms of the 10 April 2014 heads of agreement survived the written Deeds; and

(b)    various express terms of the Deeds are inconsistent with the plaintiffs’ case, including provisions such as cl 13.1 (entire deed), cl 5.3 (ATO’s power to recover liabilities which were not the subject of the Taxation Debts) and cl 3.2 (taxpayer’s duty of compliance with current and future tax liabilities).

116    The defendant also submitted that there were inconsistencies in the plaintiffs’ case which alleged that the 10 April 2014 heads of agreement were in fact final agreements. First, their claims that there was a global deal, that debt recovery would be deferred in relation to taxation liabilities of identified taxpayers who were currently under audit or that the security which was paid was not referrable to any specific liability that covered all liabilities of the identified taxpayers, including those which were still unknown but were under audit, are not reflected in the notes of that meeting or other correspondence (or, indeed, in either of the Deeds). Secondly, the defendant emphasised that the alleged terms are in fact inconsistent with those Deeds.

117    The defendant submitted that Mr Caratti was not a reliable witness and that, in the event of any conflict between his evidence and that of Mr Burns or Mr Barton, their evidence should be preferred, together with the relevant documentary evidence.

118    As to the plaintiffs’ allegations of unconscionable conduct or abuse of process, the defendant submitted that the evidence did not support the plaintiffs’ claims that the statutory demands had been issued for some purpose other than to wind-up the companies on the basis of their unpaid taxation debts. Emphasis was placed upon Mr Burns’ frustration with the delays in finalising the terms of the Deeds, as well as Mr Caratti’s acknowledgement that their finalisation was taking too long. The defendant disputed the evidence established that Mr Burns was prepared to use an improper “modus operandi”. Ms Foda relied upon an exchange of emails between Mr Burns and Mr Caratti on 8 August 2014 concerning security arrangements for Mr Caratti’s daughters and the possible use of a statutory demand in respect of a portion of the Whitby debt which was not the subject of any security arrangement. Ms Foda submitted that the correspondence disclosed no impropriety on Mr Burns’ part: he simply confirmed that it remained open for security arrangements to be finalised in respect of Whitby and that there was no agreement to refrain from taking recovery action until such arrangements were finalised. In particular, Mr Burns made no threat in those emails to the effect that he would place pressure on Mr Caratti’s daughters if Whitby did not provide security and Mr Caratti never made any such complaints.

119    Ms Foda also took the Court to Mr Barton’s handwritten notes of the 10 April 2014 meeting, which indicated that Mr Burns’ reference to criminal charges was made in the context of security bond demands and not more broadly. The notes record Mr Burns explaining to Mr Caratti that “stage 3” tax recovery processes were “more legal” and had “more personal consequences”. There is no indication there that Mr Burns was threatening Mr Caratti with criminal charges at the meeting.

120    The defendant emphasised that, under the terms of the respective Deeds, the defendant was entitled to recover tax liabilities which were not within the terms of those Deeds. Ms Foda submitted that it was common ground that the amounts the subject of the statutory demands did not fall within the definition of “Taxation Debt” in either of the Deeds.

121    In her closing oral address, Ms Foda confirmed that the defendant’s case was based on the proposition that no binding agreement had been reached at the 10 April 2014 meeting, that certain arrangements had been discussed but they needed to be further negotiated and executed deeds entered into before there were any binding obligations. She acknowledged that Mr Barton had said that Mr Burns told him to defer any recovery action pending negotiation and execution of the Deeds but she submitted this did not mean that there was any binding agreement to that effect with Mr Caratti.

122    Ms Foda drew attention to the fact that notwithstanding that the plaintiffs’ solicitor wrote a very detailed letter dated 29 April 2014 commenting on an earlier draft of the Gucce Deed, no complaint was made to the effect that the draft Deed did not reflect a broader agreement which Mr Caratti now claims to have been reached at that meeting. In particular, notwithstanding that the solicitors complained about 25 different aspects of the draft Deed, no complaint was made as to the effect that the draft Deed failed to cover all liabilities under an audit or any future taxation liabilities. Nor was there any complaint that the draft Deed failed to give effect to the alleged global deal.

123    Ms Foda submitted that Ms Harako’s description of the meeting held on 10 April 2014 as involving a “Global Settlement Agreement” was not determinative. Ms Harako did not personally attend the meeting and she did not give evidence in the proceedings here.

Consideration

124    A statutory demand may be set aside by reason of a conduct which is unconscionable, an abuse of process, or which gives rise to substantial injustice (see Hoare Bros Pty Ltd v Deputy Commissioner of Taxation [1996] FCA 78; (1996) 62 FCR 302 at 317-318) or for some other reason than that provided for in s 459J(1)(a) (see Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 at [24]). It may also be accepted that a statutory demand may be set aside if it was made for a purpose other than that contemplated by the Corporations Act, such as to place commercial pressure upon the subject of the demand (see Mibor and Gribbles Pathology (Vic) Pty Ltd v Shandford Investments Pty Ltd [2004] FCA 1466; (2004) 51 ACSR 578 (Gribbles)).

125    Although there is an early authority that the use of a statutory demand to recover a debt is an improper purpose (see CVC Investments Pty Ltd v P & T Aviation Pty Ltd (1989) 18 NSWLR 295), more recent authority indicates that such a purpose need not be improper (see Khoury v Rosemist Holdings Pty Ltd [1999] FCA 458; (1999) 17 ACLC 1013 and Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (No 2) (1996) 20 ACSR 170).

126    In Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 (Meehan), Santow JA (with whom Tobias JA and Young CJ in Eq agreed) made the following pertinent observations at [35] in relation to s 459J(1)(b):

There being no defect in the demand, reliance was placed upon whether there be “some other reason” as would satisfy s 459J(1)(b). The claimants contend that such reason cannot be based simply on some need to bring to the relationship between the parties some broad form of perceived fairness or reasonableness. Rather there must be “sound or positive ground or good reason” to set aside the statutory demand for “some other reason”, which was consistent with the legislative intent of Pt 5.4 of the Act: Portrait Express (Sales) Pty Limited v Kodak (Australasia) Pty Limited [(1996) 20 ACSR 746] at 757 per Bryson J; Kezarne Pty Limited v Sydney Asbestos Removal Services Pty Limited (1998) 29 ACSR 11 at 18 per Austin J. It is the claimants' contention that the reasons given by the trial judge do not satisfy the latter requirements but are indeed based upon some broad form of perceived fairness or reasonableness.

(Emphasis added).

127    In Meehan, Young CJ in Eq added the following observations at [60]-[61] (with which I also respectfully agree):

60    It is not possible to set out fully the cases that might fall within s 459J(1)(b) nor if it were possible would it be wise to do so. The sort of case that will be covered will include gross defects in supporting affidavits and documentation and where the alleged creditor has made statements or representations relating to the statutory demand which have reasonably induced a change of the alleged debtor's position.

61    A judge is not at liberty to set aside a demand under s 459J(1)(b) merely because he or she subjectively considers it fair to do so.

128    In CP York Holdings Pty Ltd v The Food Improvers Pty Ltd [2009] NSWSC 409, Barrett J made the following observations at [11]-[14] with regard to the relevant legislative scheme, with which I respectfully agree:

11    Part 5.4 seeks to ensure that questions about statutory demands are determined separately from a hearing of a winding up application. The objective is to ensure that the result of a creditor's attempt to obtain the benefit of a presumption of insolvency through service of a statutory demand should be known - and definitively known - before the hearing of any winding up application.

12    The statutory provisions as a whole and s 459S in particular aim to confine issues about the effectiveness of the statutory demand to s 459G proceedings heard and determined in advance of the winding up hearing so that that hearing, when and if it subsequently occurs, will proceed on the basis that there is (or, as the case may be, is not) an established but admittedly rebuttable presumption that the company concerned is insolvent.

13    The Part 5.4 regime has elements of rigidity to it. It is in some ways unforgiving. Both Gummow J in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 and Spigelman CJ in Switz Pty Limited v Glowbind Pty Ltd (2000) 48 NSWLR 661 referred to aspects of the harsh operation of the statutory provisions. As their Honours noted, these are deliberate aspects of the statutory intention and purpose.

14    It is with the purpose of Part 5.4 in mind that one approaches s 459J(1)(b). The question posed by that provision is whether there is some good reason beyond and separate from those with which s 459H and s 459J(1)(a) are concerned for setting aside a statutory demand. Section 459J(1)(b) confers a remedial jurisdiction.

129    I accept the defendant’s submission that the proper test to be applied in determining an application under s 459J(1)(b) is whether his actions in issuing the statutory demands subverted the statutory scheme provided for in s 459E in Pt 5.4 of the Corporations Act such that there is a positive ground for exercising the power to set aside the statutory demands that is consistent with the purposes of that scheme.

130    For the following reasons, I do not consider that the plaintiffs have established a proper basis for setting aside the statutory demands. It is convenient to address in turn each of the three bases upon which the plaintiffs relied.

131    Were the statutory demands issued in breach of the “global deal” or binding agreements made on 10 April 2014?: The plaintiffs have not established that the parties entered into any legally binding agreement or agreements other than the Gucce Deed and the MNWA Deed (and it is common ground that neither of those Deeds reflected the broader agreement(s) which the plaintiffs claim was reached orally at the 10 April 2014 meeting). The question whether or not the agreement(s) reached at the meeting on 10 April 2014 gave rise to binding contractual relations is to be determined by ascertaining the objective intention of the parties. In applying that objective test in respect of the parties’ intention, regard may be had to surrounding circumstances, such as conversations and correspondence that took place before and after that meeting (see Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332-334 per Mahoney JA and at 337-338 per McHugh JA).

132    I accept the defendant’s submission that no binding oral agreement was reached at that meeting and that the relevant evidence, viewed objectively, points to the parties intending to postpone the creation of contractual relations until formal Deeds were drawn up and executed. That finding is supported by the following matters.

133    First, it is highly improbable that Mr Burns would have committed the ATO to entering into a binding legal agreement on 10 April 2014 when the ATO was not then aware of the quantum of potential additional taxation liabilities of the relevant entities which were not included in the spreadsheet used by him at that meeting but might subsequently emerge as a result of the audits which were on foot at that time. In other words, Mr Burns was simply not in a position at that time to know whether or not the security which Mr Caratti offered in respect of the known taxation liabilities would be sufficient to cover then unknown potential future liabilities.

134    As noted above, the plaintiffs submitted that it is evident from the final wording of the definitions of “Taxation Debt” in both the Deeds that the ATO was prepared to accept the possibility of some adjustment in the spreadsheet figures which might result from the Pt IVC processes. However, it is one thing to say that the ATO was prepared to accept the security arrangements notwithstanding the possibility of that type of adjustment in relation to a known taxation liability amount which had been arrived at after assessment by the ATO. It is quite another to say that a much wider inference should therefore be drawn to the effect that the ATO was willing to accept an amount of security in respect of an entirely unknown future amount or amounts which were unrelated to any known existing taxation liability. That submission cannot be accepted.

135    Secondly, I accept and prefer the evidence of Mr Burns and Mr Barton to that of Mr Caratti as to what was discussed at the 10 April 2014 meeting. In particular, I accept Mr Burns’ evidence, which was corroborated by that of Mr Barton, that he told Mr Caratti that, so that there was no confusion, “there are no agreements until each respective Deed is executed”. Mr Robertson QC submitted in closing address that Mr Barton was asked specifically about those words and he claimed that Mr Barton could not recollect that they were used. That is incorrect. When asked in cross-examination whether Mr Burns used those words, Mr Barton responded: “I can recall words to that effect, yes”. Thus Mr Barton corroborates Mr Burns’ evidence, which is contrary to Mr Caratti’s.

136    Thirdly, as noted above, notwithstanding Mr Caratti’s sincere personal belief that he had negotiated a binding agreement which was broader in terms than those in the subsequently executed Deeds, it is telling that that belief is not supported either by the terms of his letter dated 11 April 2014 (written very soon after the meeting), nor the letter which was written on behalf of Gucce on 29 April 2014 in response to the then draft Gucce Deed. In circumstances where Mr Caratti was authorised by Ms Bazzo to negotiate on behalf of Gucce, one would have expected Gucce’s solicitors to have included in the letter among the numerous concerns they had with the draft Gucce Deed that it should not encroach upon the broader oral agreement which Mr Caratti claims was made at the 10 April 2014 meeting. It is significant that the solicitors’ letter makes several references to that meeting yet, no comment is made on the potential effect of the entire agreement clause in cl 13.1 of the draft Deed on the alleged broader agreement. Nor was any comment made by the solicitors concerning the implications of proposed cl 5.3 and the Commissioner’s power to pursue in good faith all recovery options and powers regarding Gucce’s tax-related liabilities which did not fall within the definition of “Taxation Debt” in the draft Deed. That power entitled the Commissioner to pursue taxation liabilities such as those which the plaintiffs contend were protected by the broader agreement. Yet no objection was taken by Gucce’s solicitors. In my view that is because, objectively assessed, there was no broader agreement.

137    None of the other correspondence relied upon by the plaintiffs which post-dates the 10 April 2014 meeting provides a sufficient evidentiary basis for concluding that a binding oral agreement was arrived at at that meeting in the broad terms now alleged by them.

138    Fourthly, it is true that there are references to an “agreement” having been reached at the 10 April 2014 meeting in various materials emanating from the ATO. For example, there is such a reference in Mr Burns’ Executive Brief, which also seems to have informed Ms Harako’s use of the same term in an affidavit she swore in the proceedings in the Supreme Court of Western Australia in May 2014. Ms Harako also elected to describe the agreement reached on 10 April 2014 as the “Global Settlement Agreement”. I do not consider that any particular significance attaches to this terminology. It may be accepted that broad heads of agreement were reached at that meeting on particular matters, as is reflected in Mr Barton’s handwritten notes and, in particular, the insertion of the word “deal” alongside various issues which were discussed. That does not conclude, however, that legally binding agreements were reached at that time. For the reasons provided above, the evidence does not support any such characterisation of the negotiations which took place on that day. The evidence strongly suggests that the parties did not intend to enter into binding contractual relationships at that time and that this would only occur following the provision of additional relevant information, further negotiations (including the drafting of the respective Deeds) and those Deeds being executed. The “agreements” or “deeds” which were negotiated at the meeting were only “in principle” and did not give rise to binding contractual relations.

139    Fifthly, the fact that Mr Burns told Mr Barton after the meeting not to pursue further recovery action while the security deeds were being sorted out does not indicate that a binding agreement was reached at that meeting to that effect. The timing of any such recovery action was at the defendant’s discretion. In any event, even if it did provide some such indication, the subject matter was limited to the amounts discussed at that meeting in relation to existing taxation liabilities (as later adjusted by mutual agreement prior to the Deeds being finalised) and not any other unknown and unrelated taxation liabilities of the relevant entities.

140    Furthermore, if contrary to the above, a binding oral agreement was reached at the 10 April 2014 meeting, I consider that it was confined to the then known amounts of taxation liability by the relevant entitles as disclosed on the spreadsheet which was used by Mr Burns throughout that meeting and which provided the basis for the parties’ negotiations at that time. Mr Barton’s detailed notes of the meeting provide strong corroborating evidence to support the evidence of both Mr Burns and himself that the discussions at that meeting were limited to the known taxation liabilities for each relevant entity as disclosed in the spreadsheet and as explained to Mr Caratti. I accept Mr Barton’s evidence that the word “global” was not used at the meeting and, perhaps even more significantly, that Mr Burns never used words such as that “the deal covered all entities” or that the arrangements which were then agreed covered all issues which were then under audit, including any future taxation liabilities which might emerge as a result of those ongoing audits. Mr Burns’ evidence is to similar effect.

141    Was the issuing of the statutory demands an unconscionable departure from the terms of the global deal that no further debt recovery action would be taken against the plaintiffs?: As found above, the issuing of the statutory demands was not in breach of either of the relevant Deeds of Agreement. Both Deeds contained an identically worded cl 5.3, which was in the following terms:

Unless an Event of Default occurs, the Commissioner will not take any further action to pursue or recover any part of the Taxation Debt. For the sake of clarity, however, the Commissioner may, acting in good-faith, employ any and all recovery options and powers to pursue any tax-related liabilities of the Taxpayer which are not the subject of the Taxation Debt which is the subject of this deed.

(Emphasis added)

142    As noted at [98] above, in the case of MNWA, “Taxation Debt” was defined in cl 1.1 to mean:

the tax-related liabilities arising from the income tax assessment for the 2010, 2011, 2012, 2013 income tax years and applicable GIC due and payable by the taxpayer as at 16 June 2014, being the amount of $30,736,752.69… .

143    As noted at [97] above, in the case of Gucce, “Taxation Debt” was defined in cl 1.1 to mean:

the tax-related liabilities and applicable GIC due and payable by the taxpayer as at 6 May 2014, being the amount of $10,795,673.13…

144    Accordingly, in the case of MNWA, the GST liabilities the subject of the relevant statutory demands do not fall within the definition of “Taxation Debt” in the MNWA Deed. And in the case of Gucce, the 2012 Income Tax liabilities and associated penalties which were due on 31 July 2014 which are the subject of the relevant statutory demand do not fall within the definition of “Taxation Debt” in the Gucce Deed.

145    Under the respective Deeds, the Commissioner’s obligation not to take any further action to pursue or recover any part of the Taxation Debt is limited to the defined “Taxation Debt”.

146    The statutory demand issued on 4 September 2014 to MNWA is limited to the GST Liabilities and subsequent GIC. Those matters fall outside the definition of “Taxation Debt”. In the case of Gucce, the statutory demand issued on 4 September 2014 is limited to the 2012 Income Tax liabilities and associated penalties only which, again, fall outside the definition of “Taxation Debt” in the Gucce Deed.

147    Accordingly, the issuance of the statutory demands was not in breach of either Deed. Nor was there any “global deal” of the sort contended for by the plaintiffs, for reasons given above. In these circumstances, no unconscionable conduct has been established to warrant setting aside the statutory demands.

148    Was the issuing of the statutory demands an abuse of process because there was an improper purpose of coercing security to be pledged on behalf of other entities with disputed liabilities?: The relevant issue is whether the Commissioner’s actions in issuing the statutory demands was consistent with the legislative intent underlying Pt 5.4 of the Corporations Act, and not for some ulterior purpose (see Gribbles at [20] and Meehan at [47]).

149    In Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85; (2009) 71 ACSR 602 (Createc), Martin CJ, presiding in the Court of Appeal of Western Australia, said at [2]:

The issue of the statutory demand, and the appeal from the decision of the master setting it aside, reflect a fundamental misconception as to the purpose of the statutory demand process created by Pt 5.4 of the Corporations Act. That purpose is to provide a means whereby the insolvency of a company may be established for the purposes of an application to wind up that company. Its purpose is not to provide a means whereby those claiming a genuinely disputed debt can avoid the obligation of establishing their entitlement to that debt in a court of appropriate jurisdiction by placing commercial pressure on the party resisting payment. There is a clear inference from the evidence that Createc's purpose in issuing the statutory demand was the improper purpose of using the statutory demand process to enforce payment of a debt which it knew to be genuinely disputed. That is an abuse of process.

150    Later at [48]-[50], his Honour said:

48    Following the introduction of Pt 5.4, doubts were expressed as to whether the statutory procedures provided an exclusive code for the resolution of proceedings brought as a result of the issue of a statutory demand. However, in David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265; 131 ALR 353; 18 ACSR 225; [1995] HCA 43 (David Grant), Gummow J, with whom the other members of the High Court agreed, expressed the following view (at CLR 279; ALR 362; ACSR 234):

It also may transpire that a winding-up application in respect of a solvent company is threatened or made for an improper purpose which amounts to an abuse of process in the technical sense of that term, as explained in Williams v Spautz . However, in an appropriate case, injunctive relief may then be available to the company in a court of general equity jurisdiction. [Footnotes omitted.]

49    Since that decision, it has generally been accepted that the court retains a residual jurisdiction to restrain reliance on the statutory demand procedure on the ground of an abuse of process: see House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 21 ACSR 527 at 528; SMEC at [35]; Roberts at [54]-[58]; and State Bank of New South Wales v Tela Pty Ltd (No 2) (2002) 188 ALR 702; [2002] NSWSC 20 at [5]. In Roberts, the jurisdiction was exercised on the grounds of impropriety of purpose, and a winding-up application was dismissed with costs. Similarly, in Old Kiama Wharf Co Pty Ltd v DCT (2005) 55 ACSR 223; [2005] NSWSC 929, an application to set aside a statutory demand was upheld because the court concluded that the process was being used to ‘attempt to apply pressure to a taxpayer to force payment of a debt’: at [42].

50    Adopting the criterion from Williams v Spautz (1992) 174 CLR 509; 107 ALR 635; [1992] HCA 34 (Williams), suggested by Gummow J in David Grant , there will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers - such as the application of pressure to compel payment of the disputed debt.

151    These passages were approved and applied by Edmonds J in Lifese. His Honour found that there was a genuine dispute as to the debt. This finding then partly informed his Honour’s conclusion that the statutory demand there was also an abuse of process. His Honour stated at [17]:

On the hearing of the Company's application to set aside the statutory demand, there was no evidence before the Court that the Company was insolvent. Moreover, Lee Crane Hire put nothing in the way of submission before the Court, either orally or in writing, to the effect that the Company was insolvent. In those circumstances, the only inference open is that the issue of the statutory demand was for a collateral purpose, namely, to put pressure on the Company to pay the debt the subject of the statutory demand. Counsel for Lee Crane Hire steadfastly refrained from addressing that proposition, even though I expressly put it to him.

152    It may be accepted that, in an appropriate case, the issuance of a statutory demand for the purpose of compelling a solvent company to pay a disputed debt could amount to an improper purpose. Lifese is a recent example of such a case. Significantly, however, there was also a finding in that case that there was a genuine dispute concerning the underlying debt. Neither plaintiff contended here that there was a genuine dispute regarding the underlying taxation debts. Accordingly, it is not necessary to consider and determine whether either plaintiff is solvent or insolvent or, indeed, which party would carry the onus in respect of that question. In any event, it is relevant to recall Lindgren J’s decision in Chippendale Printing Co Pty Limited v Commissioner of Taxation [1995] FCA 20; (1995) 55 FCR 562 at 575-578, which is to the effect that solvency, without more, does not constitute an “other reason” within s 459J(1)(b) for the setting aside of a statutory demand. I respectfully agree with that view.

153    It is important not to lose sight of the fact that, in the case of Gucce, the statutory demand is in respect of debts totalling $3,796,160.01 which reflects the company’s income tax liability and GIC for the taxation year ended 30 June 2012 as asserted in the notice of assessment issued on 7 July 2014, which became due for payment on 31 July 2014. Gucce did not adduce any evidence that it had lodged an objection to this assessment. Moreover, in his affidavit accompanying the statutory demand, Mr Barton explicitly deposed that he believed that there was no genuine dispute about the existence or amount of any of these debts. This aspect of his evidence was not challenged by the plaintiffs.

154    Similar comments apply to MNWA. The statutory demand issued to that company on 4 September 2014 is in respect of taxation debts totalling $5,462,889, which relate to GST liabilities for the tax periods from 1 October 2009 to 31 December 2010 as per the taxation assessment issued on 30 May 2014. MNWA did not adduce any evidence to indicate that it had lodged an objection to that taxation assessment. Furthermore, Mr Barton swore an affidavit in support of the statutory demand and deposed that he believed that there was no genuine dispute about the existence or amount of any of these debts. He was not cross-examined on that evidence.

155    I accept the Deputy Commissioner’s submission that no probative evidence has been adduced to sustain an allegation that either statutory demand was issued for any purpose other than to set in train winding-up processes in respect of both plaintiff companies on the basis of their individual unpaid taxation debts for the relevant periods. Nor is there probative evidence to support the plaintiffs’ contention that the statutory demands were issued with the improper purpose of coercing other entities to pledge security in respect of their disputed liabilities.

156    I do not accept the plaintiffs’ submission that Mr Burns made an admission that he threatened to issue statutory demands to the plaintiffs if security was not provided in respect of Mr Caratti’s daughters’ tax liability as beneficiaries of the Whitby Trust. The relevant parts of the transcript are as follows:

MR ROBERTSON: The issue in relation to the daughters of Mr Caratti, you sought security for their debts, didn’t you?---Yes. I – I – I guess you could actually say I offered ..... security arrangement with it, yes.

And that offer was for $8 million security?---That was actually in respect of Whitby. We’re talking in terms of Whitby itself, with the implication being that if we could secure the Whitby debt – this is the stuff that arose after we had the security for the GST, so the income tax liability as it came on. I had said to him, “If we can secure the Whitby debt, if you give me enough collateral for that, then I would not be seeking to get additional collateral to secure the daughters’ debts”, because, as I said to him, I thought that would be unfair.

And you didn’t – he didn’t accept your offer of $8 million of security for the daughters, and so you took the Supreme Court summary judgment application against the daughters?---Well, once again, it wasn’t $8 million of security for the daughters; it was actually for those combined assessments. But yes, he in fact offered an unacceptable counter-proposal, which was that he provide security. In fact, what he was after was at various times 3 or 5 million dollars for this $23 million, which was too little, in my opinion. He also said that the collateral could only be used to satisfy the daughters’ assessments if they were the ones that stood – that ultimately were the last assessments standing out of this contest in alternative assessments. But in the event that Whitby’s assessment were the one that was found to be correct, I wouldn’t be able to use that security, and I found that completely unacceptable, because he also insisted that we would be having to give up our recovery rights in respect of any of those debts to enter into that arrangement.

And so when you threatened to exercise your recovery powers to issue a statutory demand, you say that was only against Whitby and not against Gucce and Mammoth?---No, I don’t say that, because I did say that, if he stopped dealing with us, if he decided he’s not providing any more security, and – we went from having a fairly cordial – I mean, we’re still friendly towards each other, but things went – you know, reached – we were at loggerheads at that point, and I had said to him “If you’re not going to be entering into the security arrangements any more, satisfactory security arrangements, then I’m left with debts that I have to collect, and inevitably, if you’ve got companies that have got debts that they don’t have the wherewithal to pay, then I will be issuing statutory demands”, and I am sure I mentioned more than just Whitby in that, and I’m sure the unsecured portion of the debts for Gucce and Mammoth would have been – were part of that.

So in your dispute with him about Whitby trust and the beneficiaries of the Whitby trust, the daughters, you made a general statement that if any of his companies didn’t comply with their security demands, they would get statutory demands?---No.

Security arrangements they would get statutory demands?---No, no, no. It wasn’t about whether they complied with their security arrangements. At that point they all were complying with their security arrangements. It was with respect to any portion of the debts – the liabilities that had been raised against them that were not the subject of a security arrangement, then I would be – and it was “Regrettably this is what I’m going to have to do”. And I gave him quite a bit of warning about that, that this – you know, “Unless you’re going to actually continue to co-operate, as we have done before, then that’s, you know, what we’re faced with, and that’s what’s going to happen again”.

Yes. So in relation to this dispute over the Whitby trust and the kids, you said that you might have to issue statutory demands to Gucce and Mammoth in respect of that portion of their debts that were not covered by their security deeds?---Eventually I said that. I said I was going to issue statutory demands, and he responded – I don’t know whether this is where you’re going, but he responded and said “Well, you can’t, because they’re subject to a security deed”. And I said “Well, the security deed only covers the tax liabilities that are specified in the security deed”, and it’s, you know, clause 5.3, I think, said we’re quite entitled – just – I think it even says “for the sake of clarity Commissioner is entitled to recover against any other liabilities that arose”. I put that to him. I was still urging him to continue to co-operate with me.

So that observation about your construction of the security deeds for Gucce and for Mammoth was made in the context of your dispute with the Whitby – in relation to the Whitby trust and the children, the daughters as the beneficiary trust?---No. I think it was broader than that. It was that he had actually just stopped co-operating, stopped dealing with us. There was a period there he wasn’t returning – unusually he wasn’t returning my telephone calls any more. And he had not done anything that was progress, constituted progress towards resolving these things in a fashion that would negate the need for the recovery action.

(Emphasis added).

157    Mr Robertson QC placed particular emphasis on the passage in which Mr Burns said: “Eventually I said that….”. However, that statement cannot be read in isolation. When viewed in the context of all the evidence set out above I do not accept that Mr Burns threatened to issue statutory demands to the plaintiffs unless adequate security was provided in respect of Mr Caratti’s daughters’ interest in the Whitby Trust. Mr Burns’ statement, which is relied upon by Mr Robertson QC, was primarily directed to the topic of the possible use of statutory demands against the plaintiffs in respect of taxation debts that were not covered by the Deeds. Mr Burns made clear that his discussions with Mr Caratti on this topic were broader than the Whitby Trust, and related to the period when he was concerned that the plaintiffs had ceased to cooperate with the ATO in finalising suitable arrangements. This evidence does not indicate any propensity on the part of Mr Burns to use the statutory demand powers for an unauthorised purpose. Nor does the email exchange dated 8 August 2014, upon which the plaintiffs also relied in making this serious allegation.

158    Finally, it is appropriate to say something further about the plaintiffs’ submission that the onus is the same for a plaintiff who seeks to set aside a statutory demand under s 459H(1)(a), i.e. genuine dispute about the existence of a debt, as applies if a plaintiff relies on “other reason” under s 459J(1)(b). It is not strictly necessary to determine this matter because, for the reasons given above, I am not satisfied that the plaintiffs have even established a plausible basis for s 459J(1)(b) to apply. In any event, however, I would reject the submission. NT Resorts dealt with an application to set aside a statutory demand where the plaintiff alleged that the debt was not presently due and payable. Justice Finkelstein considered and rejected that this amounted to a “defect” as defined in s 9 of the Corporations Law. His Honour found that such an application could, however, fall within either s 459H(1)(a) or s 459J(1)(b). At 366-367, Finkelstein J made the following obiter observations:

On what ground then should the applicant base its application? There are only two possibilities. The first is s 459H(1)(a) that permits an application to be made when there “is a genuine dispute ... about the existence ... of a debt to which the demand relates”. Here there is no dispute about the existence of the debts due to the Crown. What is said is that those debts were not due and payable. Does such an allegation fit within the language of the ground? It would if the “debt” that is referred to in s 459H(1)(a) is only a debt of the class that can be included in a statutory demand; that is a debt that is due and payable. In that event the application could be made under s 459H(1)(a). But it is by no means clear that this construction is available. The second possibility is that the application should be based on s 459J(1)(b). There is no doubt that this ground is available if s 459H(1)(a) is not.

In reality it is not necessary to reach a concluded view on the matter (although I should say that I incline in favour of the view that s 459J(1)(b)) is the only available ground) for the reason that the standard of proof would in either case be the same. That is to say if the application must be made under s 459J(1)(b) the court would not exercise its discretion to set aside the demand unless it was satisfied that there was a genuine dispute about whether the debt to which the demand relates was due and payable.

159    It is important to understand that those obiter observations (which were approved by Sulan J in Total Beverage at [30]), were directed to a situation where a claim that a debt was not due and payable arose for consideration under s 459J(1)(b). As his Honour effectively observed, it makes good sense that the same onus should apply in that circumstance as would be the case if the issue arose in the context of whether there was “a genuine dispute” in relation to the debt.

160    I do not consider that these obiter observations as to onus apply where the claim of “other reason” concerns not whether a debt is due and payable, but rather whether the power to issue a statutory demand has been abused or used for some collateral purpose. In my opinion, in such a case the onus is higher than merely establishing an arguable case. Indeed, the onus in such a case is to establish on the balance of probabilities the alleged abuse or collateral purpose and is akin to the onus which arises under s 459J(1)(a) where it is alleged that there is a defect in the statutory demand. As Finkelstein J held in NT Resorts at 364, it is necessary in such a case to establish the existence of the defect before the demand will be set aside and an arguable defect will not suffice.

Conclusion

161    For these reasons, the plaintiffs’ applications to set aside the statutory demands should be dismissed and the plaintiffs ordered to pay the defendant’s costs of the proceedings as agreed or assessed (including the defendant’s costs of the interlocutory applications dated 28 August 2015, which will also be dismissed).

Associate:

Dated:    23 October 2015