SKASE v FC of TJudges:
This is an application made by Christopher Charles Skase relating to the question of his departure for overseas. The matter is, in a sense, connected with the case in
ATC 4002which I gave judgment yesterday, relating to the question of whether or not the Australian Securities Commission could obtain an order having the effect of keeping the applicant in this country.
The material in yesterday's hearing was quite voluminous, but I am told by counsel that the Commissioner, or one of his officers who made an affidavit in those proceedings, is aware of the substance of what was put forward in that case and the Commissioner is prepared to treat it as now before me.
That was a convenient line for the Commissioner to take because it would have been burdensome - at least from the Court's point of view - for the Commissioner to raise today quite a similar question and require the whole of the circumstances to be proved again. I am grateful for the Commissioner's common sense attitude in letting today's evidence be treated as including the evidence which I had yesterday, which was, as I mentioned, extensive.
That material shows, if accepted, that the applicant has substantial debts, including a large debt to the Commissioner, and that he has very little in the way of assets. He cannot pay his debts; he cannot pay the Commissioner; he cannot pay other people. The material also discloses that there is an undertaking on the part of the applicant to make arrangements for acceptance of service of process within this jurisdiction. That undertaking was an important part of the reason why, in the hearing yesterday, I decided to reject the Australian Securities Commission's application.
Mr. Bond, who appears for the Commissioner of Taxation, has said, and it seems to me on reflection to be correct, that even if of the same general character, the question in this case is somewhat different from yesterday's. The Commissioner has caused to be served upon Mr. Skase a notice under s. 14S of the Taxation Administration Act 1953 prohibiting his departure from Australia for a foreign country. That notice is dated 30 May 1991.
According to the affidavit of Mr. P.B. Hickey, a solicitor, the notice was served this morning at 9.30 am - that is, on the morning after the judgment was given in the previous case. Mr. G.N. Harley, a solicitor, telephoned the Taxation Office this morning to inquire about the matter and he was given to understand by a Mr. Cleary that the Taxation Office had been considering for some days whether or not to issue the notice. Mr. Hickey, also, independently contacted the Taxation Office and made an inquiry and was told by one of the officials that she was aware of the evidence given in this Court yesterday, but wished to speak with the applicant to discuss making satisfactory arrangements with him. She also told Mr. Hickey that she had considered the possibility of the applicant's filing a debtor's petition, or entering into a Part X arrangement.
Section 14S(1) of the Taxation Administration Act, under which the notice of 30 May 1991 was given, reads as follows:
- (a) a person is subject to a tax liability; and
- (b) the Commissioner believes on reasonable grounds that it is desirable to do so for the purpose of ensuring that the person does not depart from Australia for a foreign country without-
- (i) wholly discharging the tax liability; or
- (ii) making arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged,
the Commissioner may, by order in accordance with the prescribed form, prohibit the departure of the person from Australia for a foreign country."
The appeal provision is s. 14X, which reads as follows:
``A court hearing an appeal under section 14V against the making of a departure prohibition order may, in its discretion-
- (a) make an order setting aside the departure prohibition order; or
- (b) dismiss the appeal.''
The Courts having jurisdiction under s. 14X are defined by ss. 14V and 14W. Section 14V(1) reads as follows:
``A person aggrieved by the making of a departure prohibition order may appeal to the Federal Court of Australia or the Supreme Court of a State or Territory against the making of the departure prohibition order.''
On the face of it, the Court has a rehearing function. The rehearing function is in this case, as it seems to me, largely confined to a legal
ATC 4003question. That is so because, in essence, the facts are not disputed and the parties have agreed that the matter is to be considered on the foundation that the prohibition order was made on the basis that the Commissioner contemplated, as arrangements satisfactory to him for the discharge of the tax liability, a step on the part of the debtor, namely the filing of a debtor's petition.
The reason that the matter is to proceed on that basis is as follows. Mr. Bond, when the case was called on, explained that he wished to file further material. When he explained the nature of the material and also explained that he was content to accept the facts which were proved yesterday, Mr. O'Shea, who appeared for the applicant, said that he would be content to argue on the basis put forward by Mr. Bond. That is why I say the matter is reduced, in essence, to a legal question.
The argument which was put forward by Mr. Bond was substantially this: he said that - and I think I quote him accurately - there is little prospect of the applicant's wholly discharging the tax liability. He went on to say - and here I do not quote him, but I hope I state his argument not unfairly - that in the Commissioner's view the best he can do in the circumstances, which may or may not produce the money due but will be better than nothing, is to achieve the result that the applicant files his own petition and there is then put in progress a bankruptcy administration. Mr. Bond said, in effect, that although this arrangement is by no means ideal and although it is very likely that it will not result in the debt being wholly paid it would, from the Commissioner's point of view, be satisfactory.
He argued that an agreement by the applicant to file a debtor's petition, and I suppose his actually doing so, would, within the meaning of the statute, be ``arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged''.
The argument which was advanced against this by Mr. O'Shea met Mr. Bond's contention on two grounds. Both of them depend on the construction of the section, rather than the facts of the particular case. Indeed, it seems to me that Mr. Bond's contention does not depend upon any peculiarity which this applicant has. The applicant is, one might say, treated for the purposes of the argument simply as a person who owes a great deal of income tax, cannot pay it, and is thinking of going overseas.
It is not suggested that the applicant, as opposed to others similarly so placed - that is, persons owing a great deal of tax and apparently insolvent - is likely to gain any advantage peculiar to him from departing for a foreign country. The argument which Mr. Bond advances seems, if correct, to lead to the conclusion that it would be legally proper for the Commissioner to take this step in any case where there is an insolvent taxation debtor, and where the Commissioner desires to have a debtor's petition filed.
I have mentioned that the argument for the applicant met the Commissioner's argument advanced by Mr. Bond on two bases. The first of them, I think, depended in part upon the view expressed by Young J. when discussing the construction of the section in a case which I am told is unreported, Dalco v. FC of T, Supreme Court of New South Wales, 13 October 1987. The passages from Dalco's case upon which Mr. O'Shea relied are quoted by Einfeld J. in
Edelsten v. FC of T 89 ATC 4120; (1989) 85 A.L.R. 226 - especially at ATC pp. 4122-4124; A.L.R. pp. 228-230.
The passage from which Mr. O'Shea particularly sought to draw comfort is the following:
```Section 14T gives the clue that the matters which spark the making of a sec. 14S order are that the recoverability of tax will be affected by the departure of the taxpayer from Australia. Accordingly, once the Commissioner is satisfied that the tax is completely irrecoverable then it cannot be the case that collection of the tax will be affected by the taxpayer going outside Australia and the raison d'être for making the order has gone so that the order must be revoked.
I am of the view that that is the way that one approaches the section. The Commissioner is to believe on reasonable grounds that it is desirable to stop a person leaving Australia because it is necessary to collect the tax that is owed to the government and that that discharging of the tax liability will be affected by the person going overseas.'''
(per Young J., ATC p. 4124; A.L.R. p. 230).
It may be pointed out (and I think this was mentioned by Mr. Bond in the course of his
ATC 4004reply) that anyone who goes overseas may make the discharging of his tax liability more difficult from the Commissioner's point of view, because of problems about service. However, that does not seem to apply here. Einfeld J., commenting upon Young J.'s remarks, added:
``In other words, it is only the possibility or likelihood that the taxpayer's departure from Australia would adversely affect the revenue that there should be under this Act a restriction on the right of an individual in a free society to travel without bureaucratic impediment. The power to issue a DPO may not be exercised penally or for other purposes.''
What Mr. O'Shea takes from this case, from the section itself and from what he says is a quotation from the explanatory memorandum, is that there must be a sufficient nexus between the restraining of the departure for a foreign country and some difficulty with collecting the tax due. Mr. Bond would say that here there is such a nexus, not directly but indirectly.
The first question is whether the section can be satisfied, where the purpose is - it seems frankly confessed - to force the filing of a debtor's petition. Mr. Bond went so far as to say (in what seemed to be an attempt to settle the matter) that on a suitable undertaking to file a debtor's petition, he thought the Commissioner might be prepared to give consideration to undertaking to withdraw the notice when the petition was filed.
There is no doubt, as I say, as to the Commissioner's purpose. Mr. Bond did not argue that the debtor's threatened departure was a difficulty, in itself: it was merely the motivation; the purpose of the s. 14S notice was to get a debtor's petition filed. If the applicant does not accede to the pressure which is applied then there will be no bankruptcy; if he does so accede, then the Commissioner, so he contends, will be better off. The question is whether that is a proper use of the provision.
Mr. O'Shea says that it is not. Mr. O'Shea's contention is that the indirect purpose of restraining the citizen from doing what he wants to do - namely, go overseas - to put pressure on him to file a petition, cannot be the sort of connection between the overseas visit and the obtaining of the tax which the section contemplates. I will state my conclusion about that shortly, but it seems desirable to comment at this stage that if Mr. Bond is right, then it would seem that the s. 14S notice is a weapon of a general character. It could be applied in any case in which the Commissioner can see that there is some lawful act which the taxpayer might perform, to the Commissioner's advantage, quite unconnected with the taxpayer's going overseas, and say, ``I will withdraw my s. 14S order if you do what I want you to do''.
The second point which Mr. O'Shea takes fastens upon that part of paragraph (b) of s. 14S(1) which is relied on by Mr. Bond; I quote it again:
``(ii) making arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged,''
The argument which Mr. O'Shea puts forward is in essence that the bankruptcy cannot be regarded, in itself, as an arrangement for the tax liability to be wholly discharged; it does not discharge that liability, in any sense. The closest it comes to it is to initiate a proceeding which may, in due course, lead to a discharge. In that connection he referred to the discussion of this question in Edelsten's case at ATC p. 4128; A.L.R. p. 235. At that page Einfeld J. says, referring to
Clyne v. DFC of T (1984) 154 C.L.R. 589:
``In my opinion, Clyne does not support the submission that bankruptcy by operation of law causes the bankrupt's debts to become wholly discharged or completely irrecoverable in terms of sec. 14T.''
I respectfully agree with his Honour; the Bankruptcy Act 1966 does not itself discharge a bankrupt's debts. Section 60 of the Bankruptcy Act inhibits action against the bankrupt for debts and s. 153(1) says that, with certain exceptions, once the bankrupt obtains a discharge under the bankruptcy, that event operates to:
``release him from all debts (including secured debts) provable in the bankruptcy.''
Mr. O'Shea's second contention, then, could be expressed by saying that, keeping in mind that the provisions of the Taxation Administration Act give a person other than a judge an authority seriously to interfere with the liberty of Australian citizens, one should not read the expression ``arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged'' so widely as to cover the mere
ATC 4005filing of a bankruptcy petition. Mr. O'Shea would say, I think, that at most that act could be described as the initiation of a process which may lead to the release of the debt.
The contention which was advanced on the other side by Mr. Bond tended not to meet that directly, but to emphasise what might be called the subjective element in the section. The argument which was advanced by Mr. Bond was that, although the bankruptcy might not give the Commissioner all he could reasonably desire, it would at least be a start and the Commissioner could on reasonable grounds believe his to be a proper use of the section. I take the view that the argument just mentioned is not quite to the point. It appears to me that the question before me is whether or not the order should be set aside or should stand and does not depend on whether the Commissioner thought himself to be acting properly, in giving the s. 14S notice.
The way in which the Commissioner has used the section, in my opinion, is not that in which one would expect the legislature to have contemplated it to be used. I accept the contentions which were put forward by Mr. O'Shea. It seems to me correct that, as Young J. suggests, there must be, to justify the order, the circumstance that recoverability will be affected by the departure of the taxpayer from Australia. Of course, in a sense, the more remote the taxpayer is, the more difficult it is for the tax to be collected. But it is not the fact of departure in itself which is thought to produce a disadvantage here; it is the fact that unless the debtor succumbs to the pressure which the Commissioner is applying, there will not be a bankruptcy.
Although one could discuss the point more elaborately, I simply say I think Mr. O'Shea is right about that; the Commissioner's stratagem is too indirect a connection. I do not believe that the section was intended to operate in such a way as to enable the Commissioner to force bankruptcy on people, to force them to do something which the law gives them an option to do or not to do.
I also accept Mr. O'Shea's second contention. Although one could, by stretching the language, perhaps say that the mere filing of the bankruptcy petition and appointment of trustee constitute an ``arrangement'', and one could further argue that those events constitute ``arrangements... for the tax liability to be wholly discharged'', neither contention seems to me to have any real strength.
One should read the provision in its natural sense. With or without the benefit of an explanatory memorandum, it does not appear to me that s. 14S has the effect for which the Commissioner contends; that is, in my opinion, the appeal should succeed.
Before I conclude the matter, I mention that I took the view at one stage that it was wrong of the Commissioner apparently to attempt to override what I did yesterday. Having heard Mr. Bond's capable argument, I am satisfied that the Commissioner had no intention of doing that and I withdraw that suggestion. That is, the Commissioner, no doubt bona fide, thought that he had a course available to him which was not available to the Court under the Companies Code.
The appeal will be allowed; the Commissioner's order set aside; and the Commissioner must pay the costs.
Mr. Bond suggests there is a question about the Court's jurisdiction to order costs. Under s. 43 of the Federal Court of Australia Act 1976:
``The Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded.''
The order is, as I have said, that the Commissioner must pay the applicant's costs.