Clyne v. Deputy Federal Commissioner of Taxation.
Judges:Lockhart J
Court:
Federal Court
Lockhart J.
This is yet another round in the fight between Peter Leopold Clyne (``the applicant'') and the Deputy Commissioner of Taxation (``the respondent'').
The applicant seeks the following:
- (1) an order setting aside a bankruptcy notice issued on 13 August 1982 at the request of the Deputy Commissioner of Taxation;
- (2) an adjournment of the present proceedings until all relevant litigation between the parties has been determined before Courts and Boards of Review, and an extension of time for compliance with the requirements of the bankruptcy notice in the meantime; or
- (3) that this Court determine, for the purposes of subsec. 41(7) of the Bankruptcy Act 1966 (``the Act'') that it is satisfied that the applicant has a counter-claim, set-off or cross demand of the kind referred to in para. 40(1)(g) of the Act, in which case no act of bankruptcy will be committed by the applicant.
The facts may be briefly stated. The respondent issued notices of assessment to income tax against the applicant for the financial years ended 30 June 1977, 1978, 1979 and 1980. The applicant lodged objections against each assessment which the respondent disallowed. Upon the applicant's request the objection for the 1977 year was treated as an appeal and referred to the Supreme Court of New South Wales. That appeal was dismissed for want of prosecution by the Supreme Court on 1 March 1982. The applicant appealed to this Court against that judgment. The appeal was heard by a Full Court of this Court on 2 August 1982 and dismissed on 20 August 1982.
Following the disallowance by the respondent of the applicant's objections for the 1978, 1979 and 1980 years of income, the matters were referred to a Board of Review and the References were heard by Board of Review No. 1 from 13 to 23 September 1982 over a period of nine days. The Board reserved its decision; but apparently informed the parties that it would be given before Christmas this year as one of the members of the Board retires about then.
On 11 March 1982 the respondent obtained judgment against the applicant in the Supreme Court of New South Wales, Common Law Division, in the sum of $334,826.25 (``the Supreme Court judgment'') being the sum of the income tax and additional tax for late payment claimed by the respondent to be due by the applicant for the financial years 1977, 1978 and 1979 (including provisional tax for the 1980 year) less:
- (a) a credit of $108,829.07 recovered by the respondent from a bank and a building society with which the applicant had deposited moneys, pursuant to notices issued by the respondent under sec. 218 of the Income Tax Assessment Act 1936 (``the Assessment Act''); and
- (b) the sum of fifty-eight cents since paid by the applicant to the respondent.
The applicant appealed to the Court of Appeal of New South Wales from the Supreme Court judgment. The appeal is still pending.
It was not disputed by the respondent that this Court has power to grant the relief sought by the applicant:
Re Sterling; ex parte Esanda Limited (1980) 30 A.L.R. 77. The respondent says that the Court should not exercise its discretion in favour of the applicant.
The applicant made a large number of submissions, some related to others and some not. Also, as his argument proceeded, he merged earlier submissions to formulate other submissions with different emphasis to
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their predecessors. I propose to summarise them in what, as I understood them, was their final form.(a) SETTING ASIDE THE BANKRUPTCY NOTICE
The applicant submitted that the respondent caused the bankruptcy notice to be issued prematurely in that he should have abided the decision of the Board of Review in the references mentioned earlier and the result of any ensuing appeals to appropriate Courts before applying for the issue of a notice. He conceded that it was incumbent upon him to establish that there was a bona fide dispute between the parties in the references to the Board or, put another way, that there was a dispute genuinely based on substantial grounds. He submitted that there was such a dispute and pointed in particular to the fact that this is not a case of references awaiting hearing by the Board, but one where the references have been heard and the decision reserved.
Notwithstanding that the judgment on which the bankruptcy notice is based is the Supreme Court judgment and that the references to the Board of Review are different proceedings under Pt. V of the Assessment Act, the applicant submitted that the only fair approach is to view them as in substance one set of proceedings or to treat the References as being analogous to counter-claims so that the existence of a bona fide dispute in the References is sufficient to justify the setting aside of the bankruptcy notice based on the Supreme Court judgment.
It is well established that Courts may decline to make a sequestration order or may restrain the presentation of a petition where there is a bona fide dispute as to the petitioning creditor's debt. Similar considerations apply in the case of a petition to wind up a company.
The respondent is no ordinary creditor. The Assessment Act confers upon him special rights and powers.
Section 201 provides:
``201. The fact that an appeal or reference is pending shall not in the meantime interfere with or affect the assessment the subject of the appeal or reference; and income tax may be recovered on the assessment as if no appeal or reference were pending.''
Notwithstanding that the references to the Board are pending, the respondent's right to obtain payment of the amount outstanding under the Supreme Court judgment remains unaffected. The amount is due and payable. See
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280; (1981) 55 A.L.J.R. 450;
Re Roma Industries Pty. Ltd. 76 ATC 4113;
Fortuna Holdings Pty. Ltd. & Ors. v. D.F.C. of T. 76 ATC 4312; (1978) V.R. 83;
Re Norper Investments Pty. Ltd. 77 ATC 4212; (1977) 33 F.L.R. 87.
The evident policy of the Assessment Act is to enable the respondent to collect or secure income tax whether appeals or references under Pt. V are pending or not.
In Roma the respondent presented a petition to the Supreme Court of New South Wales in Equity seeking an order for the winding-up of Roma. The respondent had earlier issued a demand under sec. 222 of the Companies Act 1961 based on the amounts due by Roma pursuant to assessments for Div. 7 tax, additional tax and penalty in respect of late payment. Bowen C.J. said (at p. 4116):
``The next question which arises is whether the amount claimed by the Commissioner should be treated as a disputed claim, and an order be refused on this ground. In one sense, of course, the Commissioner's claim is disputed, because appeals to the Board of Review have been lodged. However, the provisions of sec. 201 of the Income Tax Assessment Act require me to treat the debt as in effect undisputed. Such a statutory provision may in some cases lead to hardship on a taxpayer, particularly where he had paid the amount of tax assessed and later wins his appeal, whereupon the money is repaid to him without interest. This led Higgins J. in
Hickman v. F.C. of T. (31 C.L.R. 232 at p. 245) to describe it as `unjust and even baneful', but it remains in the Act. It must be appreciated that from the point of view of the revenue it is a protection against that class of taxpayer who might withhold payment and use the money as the sinews of war to conduct appeals against the Commissioner and who, being
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finally unsuccessful, was found to be unable to meet his tax liability, having spent his money on the litigation.''
Great weight must be given by the Court to the policy of the Act expressed in sec. 201 and related sections when considering an exercise of discretion in cases where stays of bankruptcy proceedings are sought. In some cases Courts have granted a stay whilst in others a stay has been refused. See the article by Mr. A.R. Castan ``Enforcement Of Payment In Contested Tax Cases'' (1976) 5 Australian Tax Review 4.
The references to the Board of Review, as I have said, were heard over a period of nine days and the decision was reserved. The transcript of evidence and of addresses before the Board is in evidence before me and comprises 734 pages.
There is no general rule that the Court must set aside bankruptcy notices or extend time for their compliance where there is a dispute genuinely based on substantial grounds. Indeed, although there are many ``disputed'' debt cases, they generally arise on the hearing of bankruptcy or winding-up petitions or on applications to restrain presentation of petitions. Little guidance is to be found in the reported cases when considering a case such as the present one, although orders are not infrequently made setting aside bankruptcy notices where the Court is satisfied that there is a dispute genuinely based on substantial grounds. Ultimately it is a matter for the Court's discretion.
The applicant submitted that the evidence before the Board disclosed that there was a dispute genuinely based on substantial grounds. The respondent submitted that there is a real likelihood that the applicant will fail in the references.
I briefly summarise some of the issues in the references as follows:
- 1. whether the applicant fully disclosed his assessable income for the relevant years and therefore whether he was able to satisfy the Board that the assessments were excessive;
- 2. whether the income for the relevant years was derived by the applicant or by a Liechtenstein Anstalt. On 1 July 1976 an agreement was entered into between the applicant personally and with himself on behalf of the Anstalt under which he agreed to perform his activities as a tax consultant as agent for the Anstalt. The respondent's case was that the agreement was a sham in that the applicant carried on his activities after the Anstalt was formed exactly as he had done before: he never communicated with anyone on behalf of the Anstalt in Liechtenstein or elsewhere, no money was ever transmitted to the Anstalt, the Anstalt went into liquidation in 1979 in Liechtenstein and was dissolved in November 1980 in each case without the applicant's knowledge and the applicant displayed no interest in the Anstalt until March 1982 when the proceedings between himself and the respondent were in train in Australia. These facts were not contested by the applicant but he relied on provisions of the agreement of 1 July 1976 which did not require him to communicate with the Anstalt including a provision not requiring him to account to the Anstalt for moneys received so long as they were not demanded by the Anstalt;
- 3. the applicant's authority to execute the agreement on behalf of the Anstalt was a power of attorney dated 29 November 1973 being the date on which the Anstalt was formed in Liechtenstein. There is an issue as to whether the applicant was authorised by the power to execute the agreement with himself. This in turn may depend on whether the relevant law is the law of Liechtenstein which would not authorise the execution of the agreement or the law of Australia;
- 4. whether the agreement of 1 July 1976 was avoided by sec. 260;
- 5. whether sec. 251L operated to render the agreement illegal and void;
- 6. whether deductions claims by the applicant were properly allowable;
- 7. as to the 1979 year of income, whether the respondent was able to make an amended assessment pursuant to subsec. 170(2);
- 8. the applicant's credit was seriously challenged by the respondent on various matters including questions relating to the receipt of income by him and to the
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operation of secret bank accounts in Vienna.
I do not think it appropriate in this case for me to form a judgment as to the prospects of success of the applicant or the respondent in the references. If they were still awaiting hearing the position may be different. But the Board has reserved its decision after a lengthy hearing on complicated issues. For me to express a view now could embarrass the Board and be unfair to both parties.
This case falls to be determined on other considerations which are relevant to the Court's discretion and which bear on other submissions of the parties, not merely those relating to the setting aside of the bankruptcy notice. I will, for convenience, now turn to those considerations and refer to them under the heading ``Discretion''.
Discretion
The applicant lives in Europe. His friends and interests are there. He works mainly in Sydney and has very little social life here. He comes to Australia ``to try and pick up some more money to spend overseas''. He carries on a business described as that of a tax and financial consultant. He advises his clients on a wide range of matters including ways of avoiding payment to their creditors, moving moneys overseas, avoiding the application of the provisions of the Act in the event of bankruptcy (for example, avoiding making preferences and avoiding the transfer of property especially within the period of relation back). He also advises clients as to stalling creditors for as long as possible, abusing the processes of the Courts - for example, obtaining adjournments by feigning sickness, by obtaining false medical certificates from friendly doctors to deceive the Courts, instructing lawyers at the last minute so that they must seek an adjournment to obtain proper instructions, and so on.
There is no dispute that he does a lot of the things himself which he advises his clients to do.
He sends money overseas whenever the opportunity arises. He banks moneys he receives here in bank accounts of companies controlled by him and not in any bank account in his own name. Clients pay him fees in various forms including cash and gold bullion. He has frequently opened and closed secret bank accounts in Vienna. He told the Board of Review during the recent hearing that he did not have any secret Viennese bank accounts during a relevant period in 1979. After counsel for the respondent showed him a copy of a piece of paper in his own handwriting which listed three accounts, he admitted that his earlier evidence was incorrect and that he did have three secret Viennese bank accounts during that period.
He has written a number of books relating to his business activities. In one of them called Outlaw Among Laywers there is printed an article which had been published in the Wall Street Journal on 27 August 1975 and written by a Mr. Kessler, a staff reporter of the Journal. Mr. Kessler interviewed the applicant in Vienna and reported that interview in the article. Mr. Kessler quoted the applicant as having said to him:
``I have a total lack of scruples. I believe that anything goes as long as it enables you to retain your property.''
Whilst being cross-examined by counsel for the respondent before the Board, the appellant gave this evidence about the passage which I have just quoted:
``Q. Do you agree that you said that to Mr. Kessler? A. I do not know in those words, but that would be the gist of - he was compressing into one article the result of three or four days' discussions and I am sure that is the - it is an accurate summary of the attitude of mine that I have conveyed to him.
Q. So that whether or not those were the exact words, you agree that you conveyed to him the substance of what I have just read out to you? A. Yes, I do. Yes.''
The applicant's attitude to the current litigation between himself and the respondent is clearly expressed in statements made by him to some of his clients at a ``seminar'' held about the first week of August this year. He said:
``And on present indications the situation looks like this, so far as collecting tax from Peter Clyne is concerned, that there is a 10 day fixture in the Board of Review from which there'll only be an appeal to the Supreme Court and then to the
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Federal Court and then the High Court and then there'll be a second hearing of the Board of Review from which there will be an appeal to the Supreme Court and then the Federal Court, and then the High Court and then I've challenged the validity of the whole Income Tax Act which I maintain is a figment of the imagination, and that's got to go to the Supreme Court and to the High Court and then we'll see in about 1989 or 1990 what else might occur to me.Illustrating again the basic advantage we have in this fight''
Some further insight into the applicant's views and standards may be gleaned from the following passages in one of his books HOW TO SURVIVE A FINANCIAL CRISIS... and then make more money than ever!
In Ch. 6 ``The Gentle Art of Salvage'' he said the following (at pp. 27 to 30):
``If you decide to go bankrupt, there are many ways of salvaging some or all of your assets in such a way that your creditors cannot get at them, and without breaking the law...
But I can and do tell you how you can salvage your assets, effectively and without going to prison. Let us recognize at the outset that these are two legal problems, not one, though at times they overlap...
The first problem concerns legality. The law forbids certain things, and you risk prison if you do something that's forbidden... usually for no longer than twelve months, which means eight months after remissions for good behaviour, so the risk may not seem all that hard if you are buying safety from the much more frightening spectre of poverty...
(A collateral risk, of far less importance, is that although what you do may be legal, the court might disapprove of it, and this could lessen your chances of a quick discharge.)...
Thus the basic rules for the salvaging of assets are:
- 1. If possible, do not transfer assets at all.
- 2. If there must be any kind of transfer, make sure that the transfer occurs twelve months or more before you go bankrupt.
- 3. If there is any doubt as to whether or not your creditors can get at your assets, place them beyond reach in a Swiss or Viennese account.
- 4. If there is any doubt as to whether or not you have broken the law, place yourself beyond reach for a while... though in the end it is better to come back and face the music, as I did, and you will probably find that you didn't break the law after all. Even the Bartons found they hadn't broken the law.
- 5. Go easy! It's less likely to occasion unpleasantness and confrontation if, using the above rules, you salvage some of your assets, but leave a little for your creditors. That way you may finish up with your discharge, with your creditors taking you to lunch, with a good bit in reserve, and writing such books as How to Survive a Financial Crisis.
Dealing with these rules in more detail, Rule 1 is to avoid transferring anything. If you have plenty of time, and time is the name of the game in this area, there are many assets you can simply place in someone else's name without the need of a transfer. You can sell property A and buy property B in the name of your new Swiss company [sic], or in the name of a new Australian company whose shares are held by your Swiss company or by your Liechtenstein Trust. Or you can say to someone who owes you money: Don't pay me! Buy a strata title unit and lease it to me for life at a rental of $1 per week. Nothing has been transferred, and if the lease is properly drawn so as to give only you a personal right of occupancy there is no asset for your creditors to seize!
There are numerous other possibilities. Each individual case calls for individual solutions. Suffice to mention my case as an example of how close you can sail to the wind without actually sinking...
Careful readers will recall how, while dispensing justice to the fortunate people of Zambia, I persuaded my friendly bank manager to transfer all my cash to a Swiss
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account two days before I went bankrupt, not forgetting to send him a cable of thanks which was later duly read out to the entranced assemblage at the public examination...I might well have been demoted from bench to dock as a result of this exercise, except for one thing... The Bankruptcy Act forbids you from transferring your assets to a place of safety shortly before you go bankrupt. But this money belonged to a company, and it wasn't in any financial trouble. In times of possible trouble, it always pays to have your assets placed in someone else's name, if you can do this without transferring anything, even if that someone else is a company wholly owned and controlled by yourself.
In law it is a separate legal entity.''
In Ch. 7 titled ``Open a Secret Account in Vienna!'' the applicant said this (at p. 31):
``Swiss accounts are becoming difficult to obtain, but two Viennese banks have very kindly authorized me to open secret accounts for my clients. For a reasonable fee, usually $1,250 per passbook, I'll give you a passbook and a code number. To pay in money, simply mail the cash (in Australian dollars) to the bank, with a piece of paper containing the code number. As Big Brother may use X-Rays, and money contains a metal thread, some careful clients wrap their cash in plain paper, then in carbon paper, then again in a layer of plain paper, with the code number written on the outside. Should Big Brother nevertheless open the envelope... to our knowledge this has never happened... you would lose the contents, since this is a breach of regulations, but no one can prove who sent the money.
The Viennese bank then converts the money into Austrian schillings, which are the most stable currency today after the Swiss franc. Your funds are held in complete secrecy, since even the bank doesn't know who owns the account. (If you give a false name, or send your girl friend for the passbook, I won't know either!) Thus no one can steal or trace your money. To draw out the money, your agent or you must present the book in Vienna, and also write a second code word or code number... the whole arrangement is thief-proof, fiscal-fiend-proof, and... most important of all... creditor-proof.''
In Chapter 19 titled ``Your Day in Court'' the applicant says (at pp. 81 to 83): -
``Every man is entitled to his day in court, and even you are entitled to yours. You have filed your defence (what there was of it) and asked for hundreds of useless `particulars' (and got hundreds of useless answers), and now you must prepare for the hearing. With most litigants this means that they must prepare to win their case. But we know you aren't going to win yours, don't we? So your preparations are simpler. They consist of trying to put off the hearing for as long as possible; and when you can't put it off any longer, you must prepare to confuse things so much that you will have foundations for an appeal. Or perhaps the judge will make a mistake, especially if you irritate him sufficiently...
Concentrate on questions of law at the hearing. There is nothing in the facts to help you. Facts are to be avoided. Conjure up some legal defence, or play with your counter-claim. Say you are only a layman... and you have done your best, but you apologize if you don't put things in the right way... but it says here... With luck the judge will think that it's your inexperience that makes what you say seem so totally lacking in relevance.
The following are a few random suggestions for complicating the case, irritating everyone and dragging out the proceedings as long as possible - remember, it is costing your creditor a lot of money, while all this entertainment is free so far as you are concerned (one Judge in Sydney had to be taken away to a clinic after seventeen days of a particularly skilful litigant-in-person, and of course the proceedings had to start all over again). Anyway, here are some ideas:
- 1. Admit nothing. Insist that every part of the enemy's case be proved strictly. If it's mammoth, insist on proof that they are properly incorporated in accordance with the laws of Panama or what-have-you, that the person who authorized the
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proceedings was himself authorized to authorize them, and that those who authorized him had the necessary authority...- 2. Object to every question, to every answer and to every tender of a document.
- 3. Cross-examine every witness at length, and fiercely. But stay within limits - judges don't like you accusing someone of having served a long prison sentence for fraud, if he hasn't, because that can be disproved; they don't mind so much if you accuse every witness of being a mental defective or a paranoid, or perhaps both, because that can't be disproved.
- 4. Address the court at great length from the bar table, and tender written submissions which should be lengthy and complex, even if they are as senseless as the last speeches of Der Fuhrer, or as inscrutable as the pronouncements of the Sphinx. `I've had a friend to help me with these,' you say to the hapless judge as you hand him 216 pages of illegible gibberish. `I'm not a lawyer but I do hope Your Honour will look through these and help me as best you can...' He will. He has to.
Finally, there will be judgment against you. Appeal if you wish, but without a lawyer this may not get you much extra time. It is better now to retire, lick your wounds, prepare for the end game and start planning your life in such a way that the judgment will be worth neither a cent nor a sou nor a penny.''
I forbear from setting out any further extracts from the applicant's books or his evidence before the Board.
It is plain that the applicant intends to do everything in his power to delay proceedings between himself and the respondent for as long as possible in whichever Court or Tribunal they are in conflict. He has no intention of paying any moneys to the respondent notwithstanding the existence of the Supreme Court judgment. His avowed purpose is to frustrate and delay the respondent in every way possible in his attempt to recover the tax which is due to the respondent. Although he receives remuneration for his services in Australia, he takes steps to ensure that the respondent will never be able to obtain payment of the tax. He is an expert at placing assets beyond the respondent's reach and has no scruples about doing so. If the day comes when the applicant is made bankrupt he intends to ensure that there will be no property which can be seized for the benefit of his creditors. The applicant seeks to use the Courts as pawns in his game against the respondent.
Mindful of the problems in his path, the applicant proffered an undertaking to this Court during the hearing of the application which was set out in writing and was said by the applicant to be unconditional and to operate irrespective of the outcome of the application. The undertaking is in the following terms:
``UNDERTAKING
1. I hereby undertake that during the pendency of the proceedings between myself and the Deputy Commissioner of Taxation in the Supreme Court of N.S.W. and in the Federal Court of Australia and in the Board of Review and during the pendency of any appellate proceedings arising from either of the said proceedings I will not without the leave of the Supreme Court of N.S.W. or the Federal Court of Australia or the written consent of the Deputy Commissioner of Taxation dispose of any assets or transfer or attempt to transfer any assets or money from the Commonwealth of Australia to any country outside the Commonwealth of Australia.
2. This undertaking is given on my own behalf, on behalf of Metropolitan Mortgage Investment Corporation Pty. Ltd., Oeax 3 Pty. Ltd., Nadove Pty. Ltd. and Peter Clyne International Pty. Ltd. and any other company which I may now own and control or which I may own or control in the future throughout the period referred to in para. 1 hereof.
3. Nothing in this undertaking is intended to restrict my right -
- (a) To pay debts in the ordinary course of business, or private debts.
- (b) When travelling outside Australia, to acquire foreign currency required
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for travel expenses not exceeding ten thousand dollars ($10,000) per journey, take that currency with me and spend it on travel expenses as aforesaid.Dated this 30th day of September 1982
sgd.
(Peter Clyne)''
Within moments of proffering the undertaking the applicant said to me that, although he would observe it by not sending moneys abroad, he may spend it all in Australia. I decline to accept the undertaking. It would be too easy for the applicant to breach it without detection.
I turn to another aspect of the matter. By setting aside the bankruptcy notice or extending time for compliance or adjourning the application I would be, in effect, granting the applicant a stay of execution of the Supreme Court judgment. The applicant sought, unsuccessfully, a stay from the Supreme Court on 11 March 1982. It is still open for him to renew that application. Indeed, the bankruptcy notice itself provides that he may secure payment of the amount claimed by the respondent to the satisfaction of this Court or the respondent. If he complies with the notice and provides the security he will not commit an act of bankruptcy. It is probable that he controls property whether in this country or elsewhere with which he could provide some security. As to its sufficiency or the acceptability of its form, I say nothing. Indeed, counsel instructed by him before the Supreme Court on 11 March 1982 offered $50,000 cash as security. Also he is paid fees here in one form or another. So it seems that funds or property of some kind may be martialled by the applicant. I should add that there is no clear statement of the applicant's financial position before me. He gave no evidence as to assets, liabilities, income or expenditure.
The applicant must comply with the requirements of the notice or commit an act of bankruptcy. To defer the operation of the notice would merely place another weapon in his hands to delay and defeat the respondent (according to the applicant, until about 1989 or 1990), who is a creditor in a substantial sum and entitled to obtain payment of the tax which is due and payable.
The proper time for the Court to consider whether its discretion should be exercised in favour of the respondent is upon the hearing of any petition to sequestrate his estate which the respondent, or any other creditor, may present. The Court will then have a more recent knowledge of the stage reached in the litigation between the parties in the Court of Appeal and Board of Review or any other Court or tribunal then involved in the battle. The applicant's financial position and the views of any other creditors can be ascertained.
In the meantime an act of bankruptcy may be committed and a petition for sequestration presented, so that if a sequestration order is made the rights of creditors will be better preserved.
The commission of an act of bankruptcy and the presentation of a petition for sequestration are critical events in bankruptcy. After a debtor becomes bankrupt the date of the commission of an act of bankruptcy and the date of presentation of the petition on which he was made bankrupt are vital for various purposes including the determination of the period of relation-back (sec. 115), the ascertainment of his property divisible amongst his creditors (sec. 116), the avoidance of preferences (sec. 122 and 123), the avoidance of voluntary settlements (sec. 120) and the repayment by creditors to the trustee of his estate of moneys received as a result of execution by those creditors against his property (sec. 118).
If the applicant were to become a bankrupt it is obvious that delay in the meantime could only cause detriment to the respondent and other creditors, if any, of the applicant.
Of course, the applicant may not become bankrupt. He may satisfy or secure his indebtedness to the respondent. He may succeed in the litigation before the Court of Appeal or the Board of Review and not be made bankrupt in the meantime. In balancing the conflicting interests of the applicant and the respondent it is preferable that no indulgence is granted to the applicant at this stage. The proper time to consider any adjournment of any relevant bankruptcy process or proceeding is upon the hearing of a bankruptcy petition, and not before.
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I do not say for one moment that in the appropriate case, relief such as is sought by the applicant here should not be granted. There may be cases where, notwithstanding the existence of a common law judgment in favour of the respondent against a taxpayer, time for compliance with a bankruptcy notice, issued at the respondent's request, should be extended or the notice even set aside.
I will not set aside the bankruptcy notice in this case.
(b) EXTEND TIME FOR COMPLIANCE WITH THE NOTICE
The applicant submitted that the Court should extend time for compliance with the requirements of the bankruptcy notice until the final determination of all his disputes with the respondent in proceedings before Courts or tribunals.
The Court may extend time for compliance with the requirements of the bankruptcy notice:
``Where, before the expiration of the time fixed by the Court or the Registrar for compliance with the requirements of a bankruptcy notice -
- (a) proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
- (b) an application to set aside the bankruptcy notice has been filed with the Registrar...''
(subsec. 41(6A) of the Act).
It is not disputed by the respondent that the appeal from the Supreme Court judgment to the Court of Appeal of New South Wales falls within para. 41(6A)(a); but the respondent submitted that subsec. 41(6C) operated to prevent the Court from extending time on the ground mentioned in para. (a).
Subsection 41(6C) provides:
``Where -
- (a) a debtor applies to the Court... for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and
- (b) the Court... is of the opinion that the proceedings to set aside the judgment or order -
- (i) have not been instituted bona fide; or
- (ii) are not being prosecuted with due diligence,
the Court... shall not extend the time for compliance with the bankruptcy notice.''
The respondent submitted that the appeal to the Court of Appeal was not instituted bona fide and was not being prosecuted with due diligence. I do not propose to deal with this argument as the Court of Appeal may hear the appeal soon and, even if I were against the argument so that my discretion could be exercised in favour of extending time for compliance, I would not in fact extend time for the reasons given by me earlier under the heading ``Discretion''.
The second leg of the applicant's submission was that time for compliance should be extended until this Court has determined whether the bankruptcy notice should be set aside (para. 41(6A)(b)). This submission also fails for the same reasons.
``SAFETY NET'' SUBMISSIONS
The applicant submitted that the bankruptcy notice should be set aside on any one of six other grounds. He described these submissions as his ``safety net'' submissions.
(c) The bankruptcy notice was said to be invalid because it comprised two pages and was not signed on the second page by a Registrar or a Deputy Registrar in Bankruptcy. Alternatively, service of the notice was said to be invalid on the same ground. The applicant relied on bankruptcy Rules 7(5) and 15(a) which provide:
``7. (5) Where the Registrar is satisfied that application has been duly made to him for the issue of a bankruptcy notice and that the copies of the form of bankruptcy notice furnished to him in accordance with paragraph (2)(b) are in order for signature, the Registrar shall sign and stamp each of those copies and return them to the applicant.
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15. Unless otherwise ordered by the Court under sub-section 309(2) of the Act -
- (a) service of a bankruptcy notice shall be effected on the debtor by delivering to the debtor personally a copy of the bankruptcy notice signed and stamped by the Registrar...''
The bankruptcy notice in this case comprised two pages. A Deputy Registrar in Bankruptcy signed and stamped the notice at the foot of the first page. The note to the notice telling the applicant what he could do if he had a counter-claim, set-off or cross demand of the kind mentioned in para. 40(1)(g) of the Act appeared on the second page. The Deputy Registrar did not sign the second page but stamped it.
In my opinion the notice was signed by the Deputy Registrar notwithstanding that the note thereto appeared on the second page. The prescribed form (form 3) provides for the signature of the Registrar (or a Deputy Registrar) once only. That is precisely what was done here. The fact that the note appears on the second page of the notice does not invalidate the notice or otherwise render it, or the service thereof, defective. Nor is there any reason why a bankruptcy notice should not extend beyond the first page. If, contrary to my view, the notice or service thereof is defective it would not render the notice or service void. I would exercise the Court's powers under r. 195 to treat the signature of the Deputy Registrar presently appearing and the service of the notice as constituting sufficient compliance with the requirements of the Rules: see r. 195.
(d) The applicant submitted that the references before the Board constituted counter-claims to the Supreme Court judgment debt and that, although they do not equal or exceed the amount of that debt. if the applicant succeeds in the references there will be no true debt to found the bankruptcy notice. As a Full Court of this Court dismissed the applicant's appeal from the Supreme Court judgment which earlier dismissed the applicant's appeal under Pt. V to the Supreme Court for want of prosecution in respect of the 1977 year of income, on no view of the facts could any counter-claim of the applicant equal the amount of the Supreme Court judgment.
The applicant relied on the decision of the Supreme Court of Victoria in Fortuna Holdings Pty. Ltd. & Ors. v. D.F.C. of T. (supra) where that Court heard an application for an interlocutory injunction against the respondent to restrain him from presenting a petition for the winding-up of the plaintiffs. The Supreme Court held that certain references to a Board of Review involving the plaintiffs and the respondent should be regarded as being in the nature of counter-claims within the principle that where a creditor intends to present a petition to wind up a company and the company has a genuine cross-claim based on substantial grounds which equals or exceeds the creditor's debt, a Court may restrain the presentation of the petition if its mere presentation would cause irreparable damage to the company.
Fortuna is plainly distinguishable from the present case. It concerns a statute and facts which are materially different. In Fortuna the Supreme Court did not say that the rights of a taxpayer in references or appeals under Pt. V are counter-claims. The Court said, when considering the exercise of its discretion, that those rights may be regarded as analagous to counter-claims.
A counter-claim, set-off or cross demand under para. 40(1)(g) and subsec. 41(7) must be one capable of being enforced by action or capable of quantification at the relevant time which, in my view, cannot be earlier than the hearing of the application in the present case; see In
re G.E.B., A Debtor (1903) 2 K.B. 340 at pp. 348, 349 and 351 and
Re A Debtor; Ex parte C. of T. of Commonwealth of Australia (1964) 19 A.B.C. 296. On no view of the matter can the references before the Board answer this description. Indeed, sec. 202 of the Assessment Act provides that, if the assessment is altered on appeal, a due adjustment shall be made; but the right to the due adjustment, if any, cannot arise until the assessment is altered on the reference or appeal.
As I understand the argument of the applicant, it is probably inherent in it that the Supreme Court judgment is not a final judgment and that, when the Board of Review completes the references to it, any assessments, determinations or decisions which it may make will result in the
ATC 4495
extinction of the respondent's assessments, determinations and decisions, and the substitution of those of the Board. This is said in some way to render the judgment of the Supreme Court defeasible. The applicant relies, in particular, upon sec. 193 of the Assessment Act.In an earlier round of the fight between the parties (
Clyne v. D.F.C. of T. 82 ATC 4349) I held that the same Supreme Court judgment was a final judgment and not defeasible. All that the applicant has done in this second round is to add sec. 193 to his argument. In my view it does not have the result contended for, and I reject the argument. Also, the notion that when the Board makes an assessment, determination or decision there springs into being a new assessment is, in my view, contrary to the decision of a Full Court of this Court in
F.C. of T. v. Mantle Traders Pty. Ltd. 80 ATC 4588.
(e) The applicant submitted that the Supreme Court judgment is not a final judgment and therefore cannot be the vehicle for a valid bankruptcy notice.
I reject this submission for the reasons given in (d) above.
(f) The applicant's next submission was that, when the Deputy Registrar in Bankruptcy fixed the time for compliance with the requirements of the bankruptcy notice under para. 40(1)(g)(i) he exercised the judicial power of the Commonwealth of Australia, so that the notice was bad.
This argument was put to Gibbs J. in
Re Moss; Ex parte Tour Finance Limited (1968) 13 F.L.R. 101 and his Honour rejected it. I rejected a similar argument in Re Maddox; Ex parte the debtor (1979) 36 F.L.R. 392. I need not repeat what is said in those two judgments. I reject the argument.
(g) The applicant submitted that, when the respondent caused the bankruptcy notice to be issued, he had not paid the applicant's costs which the respondent was ordered to pay when the earlier bankruptcy notice was set aside by me on 13 August 1982. The bankruptcy notice before me now was issued on that same day. The applicant asserted that the time for compliance should be extended until those costs are paid. He based the argument on various decisions which say, in effect, that in some circumstances if A sues B and loses he will not be allowed to sue B again on the same subject matter until he has paid B's costs which he was ordered to pay in the original action. I do not propose to say very much about this argument. It has only to be stated to be rejected. The issue of a bankruptcy notice is not the commencement of a proceeding at all. The only proceedings here are the prior application to set aside the earlier bankruptcy notice and the present application to set aside the current one. The applicant, not the respondent, is the moving party in this proceeding as he was in the earlier one.
Even if the principle relied on by the applicant was relevant here, I would not exercise my discretion in favour of granting any of the relief sought by the applicant for the reasons given earlier under the heading ``Discretion''.
(h) The applicant submitted that the Court should be satisfied that the references to the Board constituted counter-claims of the kind referred to in para. 40(1)(g) equal to or exceeding the amount of the Supreme Court judgment. He relied on subsec. 41(7). He said that the relevant time to determine this question was when the bankruptcy notice was issued namely, 13 August 1982 which preceded the date on which the Full Court of this Court dismissed his appeal for want of prosecution from the Supreme Court's judgment under Pt. V. in respect of the 1977 year of income. I have already rejected the essential ingredients of this argument when considering other submissions. I reject this submission also.
I reject all the applicant's submissions; but I propose to allow him 14 days to comply with the requirements of the bankruptcy notice, either by paying the amount claimed in it or by securing payment thereof to the satisfaction of this Court or the respondent.
I am not satisfied that the applicant has a counter-claim, set-off or cross demand of the kind referred to in para. 40(1)(g) of the Act. I extend time for compliance with the requirements of bankruptcy notice No. 3645 of 1982 up to and including 25 October 1982. Otherwise I dismiss the application. The applicant is to pay the respondent's costs of
ATC 4496
all matters before me including any reserved costs.ORDERS
THE COURT ORDERS THAT:
1. It is not satisfied that the applicant has a counter-claim, set-off or cross demand of the kind referred to in para. 40(1)(g) of the Bankruptcy Act, 1966.
2. Time for compliance with requirements of bankruptcy notice No. 3645 of 1982 be extended up to and including 25 October 1982.
3. Otherwise the application be dismissed.
4. The applicant pay the respondent's costs of all matters before this Court including any reserved costs.
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