Federal Court of Australia

Lifestyle Homes (ACT) Pty Ltd v Deputy Commissioner of Taxation [2024] FCA 1376

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 459H(4) of the Corporations Act 2001 (Cth), the amount of the statutory demand issued by the Defendant to the Plaintiff dated 14 May 2024 be varied to $4,166,779.24.

2.    The Plaintiff’s application to set aside the statutory demand otherwise be dismissed.

3.    The Plaintiff pay the Defendant’s costs of the proceeding as taxed, assessed or otherwise agreed.

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

REASONS FOR JUDGMENT

PERRAM J:

1    The Plaintiff applies under s 459G of the Corporations Act 2001 (Cth) (‘the Act’) to set aside a statutory demand. The statutory demand was issued by a Mr Allen, a Deputy Commissioner of Taxation, and is dated 14 May 2024. It was served on or about 20 May 2024 and sought the payment of $4,639,752.35 in respect of a running balance account deficit debt together with lesser amounts of unpaid income tax, a superannuation guarantee charge and general interest charges. By the time the application was heard on 25 November 2024, the Plaintiff had paid some of these amounts and the outstanding liability was agreed by the parties now to be $4,166,779.24. Although there is nothing to suggest that the sum sought by the demand was incorrect at the time it was issued, the Deputy Commissioner was content for the amount of the demand to be reduced pursuant to s 459H(4) of the Act to $4,166,779.24.

2    The Plaintiff submits, however, that the demand must be set aside under s 459J of the Act which provides:

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

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

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

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

3    Section 459J(1)(a) requires that there should be a defect in the demand and that because of that defect substantial injustice will be caused unless the demand is set aside. By s 459E(2)(e), a statutory demand ‘must be in the prescribed form (if any)’. Regulation 1.0.03(1) of the Corporations Regulations 2001 (Cth) (‘the Regulations’) provides that a form appearing in Schedule 2 to the Regulations which is mentioned in an item in column 4 of Schedule 1 is a prescribed form for the provision of the Act referred to in column 2 of that item. Item 51H of Schedule 1 to the Regulations refers (in column 2) to s 459E(2)(e) and mentions (in column 4) Form 509H. Hence, Form 509H is the prescribed form a statutory demand must be in.

4    The text of Form 509H appears in Schedule 2 to the Regulations. Amongst other matters, Form 509H requires a statutory demand to be accompanied by five specified notes. As at the date the demand was issued, 14 May 2024, Form 509H required a statutory demand to include a Note 3 in these terms:

3.    Unless the debt, or each of the debts, is a judgment debt, the demand must be accompanied by an affidavit that:

(a)     verifies that the debt, or the total of the amounts of the debts, is due and payable by the company; and

(b)     complies with the rules of court.

(Emphasis added.)

5    Until 15 September 2023, however, Note 3(b) of Form 509H had said ‘complies with the rules’ rather than ‘complies with the rules of court’. The statutory demand issued by the Deputy Commissioner erroneously used this old form and hence said in Note 3(b) that the demand had to be accompanied by an affidavit which ‘complies with the rules’ when it should have said ‘complies with the rules of court’.

6    It was not in dispute that this is a defect within the meaning of s 459J(1)(a). The only question is whether because of that defect, substantial injustice will be caused to the Plaintiff unless the demand is set aside.

7    It may be observed at the outset that the erroneous reference to ‘the rules’ rather than ‘the rules of court’ did not occur in a part of the form which required the Plaintiff to take any step. Note 3 simply records that the statutory demand must be accompanied by an affidavit that ‘complies with the rules of court’. It is not in dispute that the affidavit which accompanied the statutory demand was an affidavit which complied with the rules of court. On the face of it, it is difficult to see how any injustice would flow to the recipient of the notice by being told that the affidavit had to comply with ‘the rules’ when it should have been told the affidavit had to comply with ‘the rules of court’.

8    If perhaps there was some suggestion that the erroneous reference to ‘the rules’ had caused the Plaintiff to fail to realise that the affidavit did not in fact comply with the rules of court, as a consequence of which it had somehow been deprived of an argument that the affidavit was non-compliant, there might be the beginning of an argument. But where there is no suggestion that the affidavit did not comply with the rules of court, it is difficult to see why the error is material to anything.

9    The Plaintiff advanced two reasons why the error would lead to substantial injustice. These were, first, that the Plaintiff had been confused by the erroneous Note 3(b); and, secondly, that the issuance of the statutory demand contrary to the correct form of Form 509H raised an issue as to whether the Deputy Commissioner had complied with his obligations to act as a model litigant.

Confusion

10    The relevant directing mind of the Plaintiff is Mr Espinoza who is its sole director. In an affidavit dated 6 June 2024 he gave this evidence at §§21-22:

21.    I have been advised by my legal counsel that the demand is not compliant with the current version of the Form. The Form or Demand does not state that it is prepared in accordance with the Rules of Court, and nor is the demand accompanied with an affidavit that the demand is said to be compliant with the Rules of Court. As a result, I am not sure if the Rules that the demand refers to is the Rules of Court, the Rules of Taxation, or the rules that are relative to smaller corporations restructuring, that prevailed for a 7 – month period in 2021, when a longer period of 6 months was prescribed in relation to a company that is eligible for temporary restructuring relief (see the Corporations Amendment (Corporate Insolvency Reforms) Regulations 2020), before winding up proceedings could be commenced.

22.    I am now confused as to the effect of the demand and what I am required to do to answer or appropriately respond to it.

11    From this evidence these matters may be inferred:

(a)    Mr Espinoza was not aware until his counsel advised him that the form of the demand contained the erroneous words ‘complies with the rules’ rather than ‘complies with the rules of court’;

(b)    counsel was aware that the demand did not comply with Form 509H because the words ‘of court’ were missing from Note 3(b); and

(c)    counsel was aware that the affidavit accompanying the demand had to comply with the rules of court.

12    Once those inferences are drawn, Mr Espinoza’s suggested confusion becomes untenable. There could be no confusion about what the Plaintiff was to do because Note 3(b) did not require the Plaintiff to do anything. Further, Mr Espinoza – through his counsel – was entirely aware that the requirement of Note 3(b) was that the affidavit should comply with the rules of court. Once counsel knew that, it was within the Plaintiff’s ability to determine for itself whether the affidavit did in fact comply with the rules of court. On the present application, it is significant that no submission was made that the affidavit did not comply with the rules of court.

Model litigant obligations

13    The Plaintiff submitted that when considering substantial injustice the net could be thrown wider than the circumstances of the particular plaintiff so as to include, for example, the issuing party’s status as a model litigant. I am not persuaded that the authorities relied upon by the Plaintiff establish this proposition. However, for present purposes it is convenient to assume its correctness. The reason for this is that I do not for a moment accept the proposition that by omitting the words ‘of court’ from Note 3(b) the Deputy Commissioner breached the Commonwealth’s obligations as a model litigant. It is evident that the form used by the Deputy Commissioner was the old form which had prevailed until 15 September 2023. Whilst the accidental use of the wrong version of Form 509H is of course regrettable, such an error falls far short of the kind of behaviour at which the model litigant obligations are directed.

Conclusions

14    There should be an order varying the amount of the demand to $4,166,779.24 but the Plaintiff’s application to set aside the statutory demand should otherwise be dismissed. The Plaintiff must pay the Defendant’s costs of the proceeding as taxed, assessed or otherwise agreed.

Associate:

Dated:    29 November 2024