FEDERAL MAGISTRATES COURT OF AUSTRALIA
Deputy Commissioner of Taxation v Scharpf
[2001] FMCA 123
Rimmer FM
11 December 2001 - Brisbane
Rimmer FM.
Applications
This is a contested creditor's petition. The notice of opposition by the judgment debtor PAULINE MARGARET SCHARPF, the debtor, seeks to invite the court to go behind the judgment that founds the petition. She contends that her former husband was to indemnify her with respect to liability for payment of taxation and in addition she contends that the amount of the taxation liability that founds that judgment debt is based upon an incorrect assessment and should be for a lesser amount.Background
2 This current petition is founded on a bankruptcy notice, QN 347 of 2000, dated 24 May 2000, which relies on the judgment of the Supreme Court of Queensland dated 3 April 2000 in the sum of $48,275.19. This is a claim by the Deputy Commissioner of Taxation for outstanding taxation liability against the respondent of $47,426.94 and $848.25 costs. It is alleged that the debtor owes the creditor an additional amount of $33,952.12, being additional tax for late payment and penalty tax calculated to 30 June 1999 and general interest charge calculated from 1 July 1999 to 22 November 2000. There has been a deduction from this amount by way of a payment by the debtor to the creditor in the sum of $30,000 on 30 May 2000. Therefore, the creditor claims the amount outstanding to them by the debtor is currently the sum of $52,227.31.
3 The judgment debt was entered by default of any appearance by the debtor in the Supreme Court of Queensland and in circumstances where the debtor did not file a defence raising the issue either of alleged indemnity or the position as to the correct assessment that are now raised in her notice of intention to oppose the application. The debtor has not since the judgment was entered by default in the Supreme Court of Queensland or to date sought to bring any action to have the judgment entered in the Supreme Court set aside.
4 The relevant background facts relied upon by the debtor are that she married one MANFRED SCHARPF in March 1982 and entered into a business partnership with him in November of 1976. She contends that on 31 March 1982 the Scharpf Family Trust was constituted by trust deed and that this trust traded as Statewide International. She further contends upon separation that she left the business and did not have any further involvement in it as a result of the action of her former husband. She then commenced proceedings seeking a distribution of property between herself and her former husband under s 79 of the Family Law Act 1975 (Cth) and in the Family Court of Australia.
5 These proceedings were heard and determined by Justice Underhill of the Family Court of Australia on various dates in September and October of 1994. In his reasons for decision, the trial judge in the Family Court found with respect to taxation liabilities as follows:
If any extra tax and/or penalty is levied on the business because of undeclared stock, the parties will be ordered to accept equal responsibility therefor. Any such tax has already been brought into account in the valuation of the business and further the husband is liable to pay any income tax levied in respect of the business since separation.
6 His Honour then ordered that the husband was to take ownership of Statewide International and provided in the orders a form of indemnity between the husband and the wife with respect to liabilities arising from the business and in particular taxation liabilities. The respondent's husband, Mr Manfred Scharpf, then obtained a stay of those orders and filed a notice of appeal. Such appeal was dismissed and upheld the primary decision that the husband should bear any tax liability when payable and that the indemnity given was a valid exercise of judicial power. On 25 November 1996 the applicant was appointed receiver and manager of the Scharpf Family Trust without security until 4 December 1996 by further order of the Family Court.
7 Thereafter, the respondent was appointed as the trustee for the Manfred Scharpf Trust by order of Bell J of the Family Court on 4 December 1996. The said Manfred Scharpf remained a trustee jointly after appointment with the respondent of the Scharpf Family Trust until June 1997. At that time a deed of resignation on his behalf was signed by a Deputy Registrar of the Family Court of Australia and pursuant to the orders made by Bell J dated 4 December 1996. At that time the respondent was then the sole remaining trustee. None of the income for the financial year July 1995 to June 1996 which forms the taxation assessment of the debt was distributed by the said trust to Manfred Scharpf. It is raised by the respondent that she was never properly advised as to her right as a joint trustee to make such a distribution by her accountant, Mr Rogervan and that she was entitled to do so.
8 From December 1996 the applicant operated the business Statewide International Holdings Proprietary Limited as it had then become as the said Manfred Scharpf had walked away from the business at an earlier date. She then maintains that she endeavoured to set out the financial affairs of the business with a view to selling it, which led to her complying with the requirements of the taxation laws of Australia and are based upon information which she had available to her at that time. She completed and submitted the taxation return for the trust 1995/1996 tax year in February of 1997.
9 In her affidavit in support she sets out that at the time she took over operation of the business she was not provided with the detailed financial records and particularly details with respect to stock. She maintains that she provided the information upon which the assessment for that tax year was formulated upon on the basis of a computer generated stock list. It is clear from the matters that she has set out in support of her notice of opposition that after undertaking a further stocktake she, in September of 1997, had her accountant communicate with the Taxation Office and as a result of that a notice of amended assessment was issued on 25 September 1997 including the requested amendment on stock. It is clear from her evidence that a further amendment for obsolete stock, as she refers to it, was issued on 6 March 1999.
10 It is her further contention that with the advent of the year 2000 and in January 2000 it was necessary for the business to then enter full stock holdings to a new computer system and as a result of that she undertook 2 full and complete stocktakes discovering at that time there was further considerable stock missing. She then, upon her evidence, had a telephone communication with the Taxation Office to request that they supply her with further details of other transactions in relation to the trust at a time when she was not the trustee and was advised she had no legal entitlement to such information for that period. In November 2000 she requested further amendment to the assessment on the basis that the 1996 stock figure was incorrect. It is clear that such request for amendment was denied.
11 That request, of course, was made after the proceedings in the Supreme Court of Queensland and after judgment by default had been obtained by the creditor for the judgment debt which founds the creditor's petition. It is submitted on behalf of the respondent that there are 2 grounds upon which the court should set aside the judgment. Firstly based upon the indemnity that she says has been provided to her pursuant to order 7 of Underhill J's orders in the Family Court of Australia providing as it does an indemnity from Manfred Scharpf to Pauline Margaret Scharpf in respect of liabilities arising from the trust and the businesses it operates, in particular taxation liabilities.
12 The second basis upon which she says that the judgment should be set aside is that the stock was incomplete and based on information which was incorrect and inaccurate. That was the information provided to the Taxation Department and, despite the 2 subsequent amendments, the stock figures still did not reflect the correct amount of stock for that financial year and that, in her assessment, and, on the advice of her accountants, if the amended stock were included in the assessment, the assessment would be nil and there would be no taxation debt.
13 It is submitted on behalf of the creditors in this matter that, in opposing the granting of the petition, the respondent invites the court to go behind the judgment that is the foundation of the petition. It is well-established, it is submitted, that the court does have jurisdiction to determine whether a debt is actually owed to the petitioner. However, the court will generally not do so unless there is a prima facie case of fraud, collusion or a miscarriage of justice. Reliance is placed on the authorities of Wren v Marnie (1972) 126 CLR 212, Corney v Bryant (1951) 84 CLR 343, Seymour v Housing Guarantee Fund Limited (1999) FCA 1441.
14 It is further submitted by the creditors that before exercising its jurisdiction to go behind a judgment debt it is also a well-established principle that the person requesting the court to do so must show substantial reasons for questioning whether or not there is, in reality, a debt owed to the creditor. Clearly, if the judgment debt had been obtained by fraud or collusion, it is submitted the court is likely to go behind the debt. However, it is submitted in this particular case, there is no allegation of fraud or collusion and therefore, it is submitted, that, at best, the respondent must rely upon there having been a miscarriage of justice.
15 It is clear that a court may be more than willing to go behind a judgment debt if the judgment is a default judgment and the issues have not been the subject of a hearing. Clearly, in Harrison v Chalarambath (1999) FCA 902, Finkelstein J said:
It is well-established that if judgment is obtained by fraud or collusion and there has been some miscarriage of justice, a court can inquire into whether the judgment debt is a good debt. If a judgment has been obtained without any adjudication on the merits, for example, in the case of a default judgment, the Court will more readily go behind that judgment to inquire whether there is a good debt.
16 This clearly is a case of a default judgment. The respondent conceded that she did not file a defence to the proceedings brought against her by the Deputy Commissioner of Taxation in the Supreme Court of Australia and judgment, by default, was obtained in or about April 2000. The debt that founded the judgment, as I have said, was a taxation debt for the 1995/1996 tax year and the debt arose out of the trading activities of a business called Statewide International carried on by the Scharpf Family Trust.
17 It is clear that the respondent was a trustee of the trust throughout the relevant tax year and a joint trustee with Manfred Scharpf, her former husband. As a joint trustee, she was jointly and severally liable for any tax payable on the income of the business. As a sole trustee for part of that year and at the time income tax returns were lodged with the Australian Taxation Office she was solely liable, it is submitted, for any tax that was payable.
18 The creditor contends that the decision of the Family Court, in particular, the decision of Underhill J upon which the respondent bases her objection to the granting of the petition, was handed down on 11 May 1995 and the statements made in that judgment should be seen in, it is submitted, various contexts. In this decision, Underhill J stated the husband has had the benefit of the entire income of the business since separation in October of 1992. It is submitted that that statement has to be seen as being a comment as to the outcome of the business to the date of the decision. It is further submitted that his Honour cannot be seen to be making a comment as to future income, especially that in the 1995/1996 tax year.
19 It is submitted that, in similar vein, the comments appearing by his Honour at page 29 of the decision where he said the husband is liable to pay any income tax levied in respect of the business since separation was not, in fact, part of the ultimate orders made by the court but, indeed, one of the findings of fact and factors that his Honour took into account when making his decision as to how the property of the parties should be appropriately distributed under the provisions of the Family Law Act 1975 (Cth).
20 It is submitted that, to any extent that this comment can be construed as being anything other than a statement of one of the facts that the trial judge was taking into account in reaching his decision, it was not and cannot reasonably be construed as being a comment as to the tax liability for future income. It is contended that that would then be at odds with the indemnity that the Family Court order then granted in respect of tax liability for future years.
21 Clearly, great reliance is placed upon the indemnity which was granted by the Family Court of Australia between the parties to those proceedings, this respondent and Mr Manfred Scharpf, her former husband. The order certainly is evidence of an intention that vis-a-vis the outcome of property proceedings in the Family Court of Australia, the wife was not to be out of pocket for tax arising out of the financial relationship between she and her husband. However, the order clearly contemplates the legal reality that, as a joint trustee, the wife, Mrs Scharpf, the respondent in these proceedings, might become liable to payment of tax to the Australian Government through the Commissioner of Taxation. Clearly, that was the very reason why an indemnity was granted to her.
22 I accept the submissions which have been made on behalf of the creditor that that indemnity is clearly between Mr and Mrs Scharpf. The nature of the indemnity is that if she becomes liable for payment of taxation as she clearly has, she can seek redress from the person against whom the indemnity was granted, that is, her former husband, Mr Manfred Scharpf, as to the amount of tax that she is required to pay. It does not affect the legal rights of the Commissioner of Taxation of Australia to levy income tax assessment against a citizen of Australia and to seek payment of that taxation as they clearly have. What that indemnity does is create for the recipient of the indemnity a right to bring action against the person who has the indemnity imposed upon them, that is, her former husband.
23 The indemnity does not shift the liability for taxation, nor could it under the jurisdiction of the Family Law Act 1975 (Cth), for proper assessment of taxation from the respondent to these proceedings, Mrs Scharpf, to her former husband and even more relevantly I find it does not shift responsibility to the Australian Taxation Office. They were not a party to the proceedings in the Family Court of Australia.
24 I am satisfied, therefore, that in respect of any indemnity which was given between parties to the proceedings in the Family Court of Australia, that is, this respondent, Mrs Pauline Scharpf, and her former husband, Manfred Scharpf, that that does not form the basis upon which this court would find that there was no true and correct debt owing between the respondent in these proceedings and the Australian Commissioner of Taxation.
25 The second ground, in my view, is a little bit more complex. I am not satisfied that, based upon the information which is currently before the court, the court can make a proper assessment of whether, in fact, Mrs Scharpf has any legal basis upon which to set aside the judgment debt which was obtained by default in the Supreme Court of Queensland.
26 Clearly, such a determination would require a lot more financial information than is available before me in this matter. Before determining this ground, what I propose to do is to grant an adjournment of the application to provide Mrs Scharpf with a window of opportunity with which to make an application to the appropriate court, that is, the Supreme Court of Queensland for the judgment debt to be set aside and for that court to clearly determine the issue between Mrs Scharpf and the Deputy Commissioner of Taxation.
27 If that application is not filed by Mrs Scharpf by the adjourned date, then that will be a further matter to be taken into account in the determination of that application. I therefore propose in these reasons for judgment to make it clear that with respect to the first ground in the notice of intention to oppose the application, that is, the reliance upon the indemnity granted in the Family Court order between the respondent, Pauline Margaret Scharpf and her former husband, that I have found that that does not provide any basis upon which this court would exercise its jurisdiction to set aside or go behind the debt.
28 With respect to the second ground upon which she relies, and that is whether or not she has a claim to set aside the judgment debt based on an improper assessment of taxation, I propose to grant, as I have said, an adjournment of this petition to 19 February 2002, in which time Mrs Scharpf can consider her position as to whether she wishes to bring proceedings in the Supreme Court of Queensland for that judgment debt entered into by default should be set aside. I will therefore order that the creditors petition be adjourned for further consideration by the court to 9.30 am, on 19 February 2002. I will reserve the question of either party's costs to that date.
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