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FEDERAL COURT OF AUSTRALIA - GENERAL DIVISION

Re BARNES; Ex parte DEPUTY COMMISSIONER OF TAXATION

Olney J

22 February, 16 March 1995 - Melbourne

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Olney J

The petition

   A creditor's petition (the petition) presented by the Deputy Commissioner of Taxation (the Deputy Commissioner) seeking a sequestration order against the estate of Keith Barnes of 17 Heather Grove Kew (the debtor) was issued on 25 July 1994 and served on the debtor on 8 October 1994.

   The petition asserts that the debtor committed an act of bankruptcy on 23 March 1994 in that he failed on or before that date to comply with the requirements of a bankruptcy notice (the bankruptcy notice) served on him on 12 January 1994 or to satisfy the court that he had a counter-claim, set off, or cross demand equal to or exceeding the sum specified in the bankruptcy notice. Upon the hearing of the petition on 22 February 1995 the Deputy Commissioner sought, and was granted without objection, leave to amend the petition to substitute 27 January 1994 as the date of the alleged act of bankruptcy.

   The debtor opposes the petition on the grounds that:

 (a)  The judgment referred to in the bankruptcy notice is not a final judgment within the meaning of the Bankruptcy Act.

 (b)  There is no debt owed by the debtor to the Deputy Commissioner.

 (c)  The bankruptcy notice is fundamentally defective in that it is one that could reasonably mislead the debtor, in that it states that he owes to the Deputy Commissioner the sum of $263,461.92 under a final judgment of the Supreme Court of Victoria of 3 December 1993.

The bankruptcy notice

   The bankruptcy notice was issued on 17 December 1993. It was served on 12 January 1994. The relevant part of the bankruptcy notice recites:

   

WHEREAS Deputy Commissioner of Taxation of the Commonwealth of Australia of 990 Whitehorse Road, Box Hill in the State of Victoria, (hereinafter referred to as the judgment creditor) has claimed that the sum of $263,461.91, (which includes the amount for which judgment was entered of $262,512.55 and interest on the judgment debt of $949.36 calculated at the rates of interest as prescribed from time to time, pursuant to section 2 of the Penalty Interest Rates Act 1983 on the judgment debt from 4th day of December 1993 to 13th day of December 1993 inclusive), is due by you to him under a final judgment obtained by him against you in the Supreme Court of Victoria on the 3rd day of December 1993, being a final judgment the execution of which has not been stayed.

   Following service of the bankruptcy notice, but before the expiration of the period specified therein for compliance, the debtor filed an affidavit which satisfied a Deputy Registrar of the Court as meeting the requirements of r 10 of the Bankruptcy Rules. The matter came before Jenkinson J on 23 March 1994, but the debtor did not appear and the judge made an order declaring that the court was not satisfied that the debtor had a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt that he could not have set up in the proceeding in which the judgment was obtained.

   As no order had been made extending the time for compliance with the bankruptcy notice, the effect of the court's order was that an act of bankruptcy had been committed by the debtor by reason of his non-compliance with the demand contained in the bankruptcy notice within the time specified, namely 14 days from the date of service. Thus, the appropriate date of the act of bankruptcy to be alleged in the petition was 27 January 1994 rather than 23 March 1994.

The judgment debt

   The bankruptcy notice alleges that the debtor is liable to the petitioner under a final judgment of the Supreme Court of Victoria obtained on 3 December 1993.

   The court record discloses that the application to issue the bankruptcy notice was supported by an affidavit of one Ross Trevor Humphries, a Deputy Commissioner of Taxation, with which was produced what is said in the affidavit to be "a copy of the entry of the judgment against the judgment debtor obtained by me in the Supreme Court of Victoria on the 3rd day of December 1993". The document so produced consists of two attached pages of paper each of which bears an impression of the seal of the Prothonotary of the Supreme Court of Victoria. The first page could conveniently be called a cover sheet whereas the second is in the form of a certificate under s 21B(3) of the Crimes Act 1914 (Cth). The certificate is signed by a Deputy Registrar of the County Court and bears an impression of the seal of the Registrar of the County Court Melbourne which is dated 26 November 1993.

   The full text of the two pages is reproduced below:

   

IN THE SUPREME COURT OF VICTORIA AT MELBOURNE

	No 10016 of 1993
BETWEEN
DEPUTY COMMISSIONER OF TAXATION OF
THE COMMONWEALTH OF AUSTRALIA	Plaintiff
- and -
KEITH BARNES	Defendant
Date of document:	3 December 1993
Deponent:
Filed on behalf of:	Deputy Commissioner of Taxation of the Commonwealth of Australia
This document was prepared by:
Australian Taxation Office
990 Whitehorse Road,	Neil Launder
BOX HILL 3128	Tel No (03) 275-2283
NOTE: THIS DOCUMENT COMMENCES ON THE NEXT PAGE
	L S
	PROTHONOTARY
	SUPREME COURT OF VICTORIA

 

CRIMES REGULATIONS STATUTORY RULES 1990 NO 227, SCHEDULE 3, FORM 22

 

COMMONWEALTH OF AUSTRALIA

 

CRIMES ACT 1914

 

CERTIFICATE UNDER SUBSECTION 21B(3)

 

IN THE COUNTY COURT

 

AT MELBOURNE

 

IN THE STATE OF VICTORIA

 

BETWEEN:

 

DIRECTOR OF PUBLIC PROSECUTIONS

 

(Appellant)

 

-and -

 

KEITH BARNES

 

(Respondent)

 

I, Brian Thiele, Deputy Registrar of the County Court, hereby certify that on the 12th day of October 1993 the court ordered that the respondent is to pay $262,512.55 to the Deputy Commissioner of Taxation.

 

Dated this … day of … 19 L S 26 Nov 1993 Registrar County Court Melb

 

(Sgd) B Thiele

 

Deputy Registrar of the County Court

 

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NOTE: You have been convicted of a federal offence under the Crimes Act 1914 or, under section 19B of that Act, you have been discharged without conviction and the court has ordered you to make reparation to the Commonwealth or a public authority under the Commonwealth by payment of an amount of money or otherwise. This payment is in addition to an fine or other penalty imposed by the court. The above certificate when filed in a court of civil jurisdiction is enforceable as a final judgement of the court in which it is filed.

 

L S

 

PROTHONOTARY

 

SUPREME COURT OF VICTORIA

The facts

   The following statement of facts has been extracted from the affidavit evidence filed in this proceeding including affidavits filed by the debtor in his earlier application to set aside the bankruptcy notice. Except as to one matter to which specific reference will be made the facts here stated are not controversial.  The debtor was at the material time a director of several companies. On 3 June 1993 he appeared in the Magistrates Court at Prahran on charges made pursuant to s 8Y of the Taxation Administration Act that as a director of certain companies he failed to remit money for group tax to the Commissioner of Taxation. The debtor was discharged without conviction pursuant to s 19B of the Crimes Act 1914 and placed on a good behaviour bond. The Director of Public Prosecutions (DPP) appealed against the leniency of the penalty imposed on the debtor and the matter came before Judge Byrne in the Country Court on 12 October 1993 when an order was made that the debtor pay the Deputy Commissioner the sum of $262,512.55. (This order is hereafter referred to as the reparation order). On 3 December 1993 the Deputy Commissioner filed the reparation order in the Supreme Court of Victoria. The debtor was not served with any papers concerning, or otherwise advised of, the registration of the reparation order in the Supreme Court.  The matter of controversy between the parties is in relation to what took place before Judge Byrne in the County Court on 12 October 1993. In an affidavit dated 21 November 1994 the debtor says (at para 6):

   

At the hearing of the Reparation Order, Mr Geary, who appeared on behalf of the petitioning creditor in the County Court appeal informed the judge that if a Reparation Order was made the Tax Office would not pursue the matter. On this basis I believe the judge made a Reparation Order notwithstanding that he did not record a conviction against me. I believe that the judge was mislead(sic) by the Tax Office and that it is improper for them to bring this proceeding.

   In a subsequent affidavit dated 12 December 1994 the debtor says that as a result of representations made by Mr Geary to Judge Byrne, he did not pursue an appeal from the decision of the County Court even though he was advised by his counsel that there were good grounds for an appeal. (It appears that no transcript of the County Court proceedings and no other record of same exists).

   Evidence filed on behalf of the Deputy Commissioner is to the following effect. Eddie Papadimitriou, a Commonwealth Public Servant employed in the office of the Deputy Commissioner of Taxation, was present at the hearing of the appeal. The Deputy Commissioner was represented by Mr Geary to whom he (Papadimitriou) provided instructions. He did not instruct Geary that the Deputy Commissioner would not take enforcement or bankruptcy proceedings against the debtor on any reparation order and he has no recollection of Geary informing Judge Byrne to that effect, nor that the Deputy Commissioner would defer any enforcement or bankruptcy proceedings until the High Court had handed down its judgment on an appeal relating to the validity of reparation orders of the kind made against the debtor. He says that the sole purpose of taking the matter on appeal was to obtain a reparation order against the debtor. In the appeal proceedings the debtor was represented by Mr Collins QC who informed the court that the debtor had no means to pay fines nor any means to pay reparation.

   No evidence has been adduced in this proceeding from either Mr Geary or Mr Collins. Papadimitriou does however say in his affidavit that on 7 December 1994 he telephoned Mr Geary and read him para 6 of the debtor's affidavit of 21 November 1994 (quoted above) in response to which Mr Geary said that:

 (a)  at the time of the County Court appeal on 12 October 1993 he was aware of the appeal to the High Court in Hookham v R (1994) 29 ATR 1; 125 ALR 23;

 (b)  he could not recall if he informed the judge of the pending appeal in the High Court;

 (c)  he had no recollection of informing the judge that the Deputy Commissioner would not enforce any reparation order either at all, or until after the decision of the High Court had been given.

   At the hearing of the petition the debtor was cross-examined briefly. Apart from reasserting his affidavit evidence as to what had occurred in the County Court on 12 October 1993 his testimony did not assist in the resolution of the conflict.

   On the material available to the court, I am satisfied that the debtor's recollection of what occurred at the hearing of the appeal in the County Court is erroneous. It defies reason to suggest that the Deputy Commissioner, having gone to the length of appealing to the County Court for the sole purpose of obtaining a reparation order, would give, or authorise his representative to give, the kind of undertaking that the debtor says was given. The debtor has not adduced evidence from Mr Collins nor offered any explanation for not adducing such evidence. In the absence of any official record of the proceedings it would appear that Mr Collins is the person most likely to be able to provide corroboration of the debtor's recollection. In the circumstances I draw the inference that his evidence would be unlikely to assist the debtor.

   I find as a fact that no statement was made to Judge Byrne on 12 October 1993 by or on behalf of the Deputy Commissioner that no enforcement or bankruptcy proceedings would be taken in the event of a reparation order being made.

The grounds of opposition

   Before entering upon a consideration of the grounds upon which the debtor opposes the petition it will be useful to refer to the relevant legislative scheme.

   Mention has already been made of s 8Y of the Taxation Administration Act. It is unnecessary to repeat that section in detail; sufficient to say that it deems a person who is concerned in or takes part in the management of a corporation which has committed a taxation offence to have committed the offence and to be punishable accordingly. This was the basis upon which the debtor was prosecuted for offences committed by his companies in relation to group tax. The authority of the Magistrates Court in a case in which the court is satisfied that a charge has been proved, to discharge the person in question without proceeding to conviction upon the person giving security to be of good behaviour is contained in s 19B(1) of the Crimes Act.

   Section 21B of the Crimes Act deals with the making and enforcement of reparation orders. The full text of the section is as follows:

   

21B(1) Where:

 (a)  a person is convicted of an offence against a law of the Commonwealth; or

 (b)  an order is made under section 19B in relation to a federal offence committed by a person;

 

the court may, in addition to the penalty, if any, imposed upon the person, order the offender:

 (c)  to make reparation to the Commonwealth or to a public authority under the Commonwealth, by way of money payment or otherwise, in respect of any loss suffered, or any expense incurred, by the Commonwealth or the authority, as the case may be, by reason of the offence; or

 (d)  to make reparation to any person, by way of money payment or otherwise, in respect of any loss suffered by the person as a direct result of the offence.

 

(2) A person is not to be imprisoned for a failure to pay an amount required to be paid under an order made under subsection (1).

 

(3) Where:

 (a)  the court orders a federal offender to make reparation to the Commonwealth, to a public authority of the Commonwealth or to any other person by way of payment of an amount of money; and

 (b)  the clerk, or other appropriate officer, of the court signs a certificate specifying:

 (i)  the amount of money to be paid by way of reparation; and

 (ii)  the identity of the person to whom the amount of money is to be paid; and

 (iii)  the identity of the person by whom the amount is to be paid; and

 (c)  the certificate is filed in a court (which may be the firstmentioned court) having civil jurisdiction to the extent of the amount to be paid;

the certificate is enforceable in all respects as a final judgment of the court in which it is filed in favour of the Commonweath, of that public authority or of that person.

(a) Not a final judgment

   The debtor says that the bankruptcy notice was not based upon a final judgment. The following points are raised in support of his argument:

   (i) Under rule 7(2) of the Bankruptcy Rules an applicant for the issue of a bankruptcy notice is required, at the time the application is filed, to:

   

 (a)  file one of the following documents in respect of the final judgment or final order in relation to which the bankruptcy notice is to be issued:

 (i)  an office, sealed or certified copy of the judgment or order;

 (ii)  a certificate of the judgment or order under the seal of the court or under the hand of an officer of the court;

 (iii)  a copy of the entry of the judgment or order certified by an officer of the court to be a true copy of that entry;

 (iv)  if the judgment or order has been registered in a court under section 21 of the Service and Execution of Process Act 1901 - an office or sealed copy of the certificate produced for the purpose of registering the judgment or order; or

 (v)  if the judgment or order is an award referred to in paragraph 40(3)(a) of the Act - a copy of the award certified to be a true copy of the award by a person who had compared the copy with the original award; and

 (b)  furnish to the Registrar, for signature and stamping by the Registrar, so many copies of a form of bankruptcy notice as are required for service and for annexure to any affidavits of service, and one additional copy of that form for filing.

   (ii) The document filed in support of the application for the bankruptcy notice consisted of two connected pages of paper, one dated 3 December 1993, being headed as in an action in the Supreme Court between the Deputy Commissioner as plaintiff and the debtor as defendant; and the other dated 26 November 1993 which refers in its heading to Director of Public Prosecutions and the debtor. The first page contains the notation "This document commences on the next page" but there is nothing on the second page to connect it to the first.

   (iii) The second page (the certificate) does not contain in the body of the document the words of explanation "by way of reparation" which appear in s 21B(3)(b)(i) of the Crimes Act.

   The debtor says that the two pages filed in support of the application for the issue of the bankruptcy notice taken either separately or together, do not constitute a reqularly entered judgment and further that in any event the certificate is not a certificate for the purpose of s 21B(3)(b) of the Crimes Act.

   There are two alternative conditions provided for in s 21B(1) that may trigger the power of the relevant court (in this case the County Court) to make a reparation order. In the facts of this case, the second alternative namely the fact that an order had been made under s 19B in relation to a federal offence committed by the debtor was satisfied. That being so the County Court was empowered to order the offender (the debtor):

   

… to make reparation to … a public authority under the Commonwealth, by way of money payment … in respect of any loss suffered … by the … authority … by reason of the offence" ( s 21B(1)(d) ).

   (The term "public authority under the Commonwealth" is defined to mean any authority or body constituted by or under a law of the Commonwealth or of a Territory (Crimes Acts 3(1)). The office of Deputy Commissioner of Taxation is constituted under s 7 of the Taxation Administration Act).

   I do not understand the debtor to have challenged either in these proceedings or before the County Court the authority of the County Court to make a reparation order, the quantum of the order, the standing of the Deputy Commissioner of Taxation as a public authority under the Commonwealth or the appropriateness of a reparation order being made in respect of unremitted group tax. Nor is it in issue that the County Court made an order in the terms of the certificate dated 26 November 1993. The thrust of the debtor's case is that the certificate does not identify the sum ordered to be paid as "the amount of money to be paid by way of reparation", and on that basis it is said that the certificate is invalid. It is the absence of the words "by way of reparation" that is relied upon.

   Taken at its face value (and disregarding the contents of the note appearing below the signature) I am of the view that the certificate is a valid certificate of the type contemplated by s 21B(3). The words "the amount of money payable by way of reparation" in s 21B(3)(b)(i) merely identify the subject matter of the certificate. They indicate that the certificate is intended to relate to the order made pursuant to s 21B(1). In s 21B(1)(c) the words "to make reparation" cannot be divorced from the words "in respect of any loss suffered, or any expense incurred". These words in combination set the parameters of the subject matter of the order which is intended to be equivalent to the amount of the loss suffered or expense incurred by the relevant authority. No doubt s 21B(3)(b)(i) could have been worded differently. It could have referred simply to "the amount ordered to be paid pursuant to s 21B(1)" and if it had, the meaning would have been the same. In my opinion there is no particular virtue in the alternative wording nor any vice in the wording actually used. The meaning of s 21B(3)(b)(i) is clear and a certificate which specifies the amount which has been ordered to be paid is not invalid by reason that it fails to mention that the amount was ordered to be paid "by way of reparation". Furthermore, the heading of the certificate specifically refers to the Crimes Act and to the section under which the certificate is issued. There can be no occasion for any confusion as to the nature of the order certified to.

   Where a certificate signed pursuant to s 21B(3)(b) is filed in a court having civil jurisdiction to the extent of the amount to be paid, the certificate is enforceable in all respects as a final judgment of the court in which it is filed in favour of the relevant authority or person (s 21B(3)(c)). There is no question that the Supreme Court of Victoria is a court having civil jurisdiction to the extent of the amount to be paid, and it is established as fact that on 3 December 1994 the certificate was filed in the Supreme Court. That being the case, the certificate thereupon became enforceable as a final judgment of the Supreme Court of Victoria in favour of the Deputy Commissioner.

   The Deputy Commissioner was entitled to apply for and obtain the issue of a bankruptcy notice relying upon the filing of the certificate in the Supreme Court as establishing the existence of a final judgment against the debtor. It matters not that the certificate was issued following an order made in proceedings to which the Deputy Commissioner was not a party nor that the cover sheet attached to the certificate refers to the Deputy Commissioner as plaintiff and the debtor as defendant. The deemed judgment in favour of the Deputy Commissioner came into existence upon the filing of the certificate in the Supreme Court.

(b) Execution stayed

   By virtue of s 41(3) of the Bankruptcy Act a bankruptcy notice may not be issued in respect of a judgment if execution of the judgment has been stayed.

   The debtor submits that it is sufficient to bring this prohibition into operation if circumstances exist under which a court would, if applied to, prevent the issue of execution. Reference has been made to the decision of the Full Court in Penning v Steel Timber Supplies Pty Ltd (1988) 18 FCR 568; 80 ALR 689 at FCR 575-6 and to the decision in DCT v Marcelle Haddi (unreported; Fed Ct Full Ct, 23/1/94). The proposition that in certain circumstances execution will be deemed to be stayed for the purpose of s 41(3) of the Bankruptcy Act if the creditor is for some reason not in a position to execute upon his judgment is not challenged. But that case is not this case. The debtor here seeks to rely upon an assertion that in the County Court counsel appearing for the DPP informed the court that the Deputy Commissioner would not pursue the matter if a reparation order was made. The basis of the debtor's submission is not supported by the finding of fact made above and accordingly the submission must fail.

(c) The bankruptcy notice misleading

   The debtor submits that by perusing the bankruptcy notice the debtor could not reasonably connect the reparation order made in the County Court with the Supreme Court judgment referred to in the bankruptcy notice and in those circumstances it is said the bankruptcy notice is a nullity. The basis of this submission is the assertion that there are no words in the bankruptcy notice to connect the reparation order made in the County Court on 12 October 1993 in proceedings between the DPP and the debtor with the judgment pleaded in the bankruptcy notice being a judgment in the Supreme Court obtained on 3 December 1993 in favour of the Deputy Commissioner. Whilst it is so that there are no words which specifically link the reparation order with the Supreme Court judgment, it is nevertheless the case that the bankruptcy notice correctly identifies the amount for which judgment was entered which is the same amount as the amount of the reparation order. Furthermore, the creditor referred to in the bankruptcy notice is the person in whose favour the reparation order was made.

   For my own part I would think that given the coincidence of the amount claimed and the identity of the debtor there is no scope for the debtor to have had any real doubt that the demand contained in the bankruptcy notice related to the reparation order made by the County Court. But in the circumstances of the case, it is not necessary to even consider that question for these reasons. Section 21B(3) provides that where a certificate of the type referred to in s 21B(3)(b) of the Crimes Act is filed in an appropriate court the certificate is enforceable in all respects as a final judgment of the court in which it is filed (my emphasis). The act of filing the certificate gives the certificate the character of an enforceable final judgment. There can be no question that the judgment sought to be relied upon by the Deputy Commissioner is the judgment which on 3 December 1993 became enforceable in all respects as a final judgment of the Supreme Court of Victoria in favour of the Deputy Commissioner. That was the judgment, a sealed copy of which, the Deputy Commissioner was required to file, and did file, at the time the application for the bankruptcy notice was filed. In these circumstances the particulars of the judgment pleaded in the bankruptcy notice are factually accurate and are incapable of misleading the debtor as to either the existence of the judgment, the identity of the judgment creditor or the amount of the judgment.

Conclusion

   The debtor has failed to demonstrate any basis upon which the bankruptcy notice may be held to be invalid. I find that the debtor committed an act of bankruptcy on 27 January 1994 by reason of his failure to comply, within the specified period, with the demand contained in the bankruptcy notice. As all other formalities associated with the petition have been proved, a sequestration order will issue.