Ademi, Abduladi v Deputy Commissioner of Taxation of the Commonwealth of Australia

[1996] FCA 167

IN THE FEDERAL COURT OF AUSTRALIA )

)

VICTORIA DISTRICT REGISTRY       )        VG 741 of 1995

)

GENERAL DIVISION                 )

ON APPEAL FROM A JUDGMENT OF A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:  ABDULADI ADEMI

(Appellant)

AND:     DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

(Respondent)

CORAM:    Ryan, Heerey and Carr JJ

DATE:     7 March 1996

PLACE:    Melbourne

REASONS FOR JUDGMENT

THE COURT: This is an appeal from a Judge of this Court dismissing an application under s. 31A(6) (and possibly s. 153B of the Bankruptcy Act 1966) for an order setting aside a sequestration order which had been made by Registrar Agnew on 26 April 1995.

On 2 September 1994, the respondent obtained judgment against the appellant, Abduladi Ademi, for $2880.80 in the Magistrates' Court at Geelong.  The amount claimed was income tax under an amended assessment for the year ended 30 June 1987.  The Court was informed from the Bar Table that no objection or other proceeding by way of appeal against that amended assessment is pending.
On 30 November 1994, on the Commissioner's application, a bankruptcy notice was issued founded on the judgment of 2 September 1994.  The bankruptcy notice was served on 8 December 1994 and, as Mr Ademi did not take any of the steps referred to in the notice, he committed an act of bankruptcy on 30 December 1994.

On 25 January 1995 the Commissioner presented a petition seeking a sequestration order in respect of Mr Ademi's estate.  The petition was served on 13 February 1995 and on 6 April 1995 Mr Ademi filed notice of intention to appear.  He also filed affidavits in opposition to the petition.  The petition came on for hearing before Registrar Agnew on 26 April 1995.  Mr Ademi was not heard in opposition to the petition.  However, the learned primary Judge accepted Mr Ademi's explanation to the effect that he had not been present before Registrar Agnew when the petition came on for hearing because he had been required to travel from Geelong and did not arrive at Court until 10.15 am. 
However, the learned primary Judge proceeded to hear the petition de novo in accordance with the authorities to which he referred in his judgment.  As his Honour observed in those reasons, the affidavit material on which the Deputy Commissioner relied justified the making of the sequestration order.  The provisions of the Act and Rules had been complied with, save in certain respects concerning the date of the act of bankruptcy, which matter was the subject of leave to amend.

His Honour proceeded to consider whether there was a serious question to be tried as to whether Mr Ademi should be made bankrupt. He concluded that there was no prospect of the Court's going behind the judgment. In so doing, he referred to the provisions of ss. 14ZZM and 14ZZR of the Taxation Administration Act 1953. Accordingly, his Honour dismissed the application.

The appellant appeared for himself, both at the hearing before the learned primary Judge and on this appeal.  His opposition to the making of the Order has already been noted, being founded on the contention that he is not indebted to the petitioning creditor in the sum of the judgment debt of $2880.80 or any other sum.

It is well established that a Court of Bankruptcy has a discretion to go behind the judgment which underlies a creditor's petition to see whether the debtor is, in truth and reality, indebted to the petitioning creditor in an appropriate amount.  See, for example, Wren v Mahony (1972) 126 CLR 212, where Barwick CJ, after referring to two statements of principle by Lord Esher MR in Re Flatau; Ex parte Scotch Whiskey Distillers Ltd (1888) 22 QBD 83 and in Re Hawkins; Ex parte Troup [1895] 1 QB 404, said at p. 224 that his Lordship, in referring to the discretion to which we have referred:

...was not intending, in my opinion, to weaken the emphasis he had always placed on the need for the Court of Bankruptcy to be satisfied of the existence of the petitioning creditor's debt.  Rather, if one reads all his expressions in the several cases I have cited, he was pointing out that the Bankruptcy Court could in general accept a judgment debt as sufficient proof of that debt particularly where it resulted from a fully heard contest between parties but that it always had the power to go behind the judgment and if the case was a proper
one should do so.  The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor's debt.  In that sense, the court has a discretion.  It may or may not so accept the judgment.  But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment : to what is its consideration.  It is not the law, in my opinion, that whether in any case the Court of Bankruptcy will consider whether there is satisfactory proof of the petitioning creditor's debt is a mere matter of its own discretion.  Nothing in Corney v Brien (1951) 84 CLR 343 lends support for such a view. Rather, the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt. The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.

However, as the learned primary Judge recognised, if the Court were persuaded to exercise its discretion in this case, it would be precluded from going any further than the assessment which had issued to the debtor under s. 177 of the Income Tax Assessment Act 1936, see Clyne v Deputy Commissioner of Taxation (1983) 48 ALR 545 at 547. Another reason for declining to undertake the sterile task of going behind the judgment debt is that the assessment has in fact been the subject of an appeal by the debtor who has had a full opportunity in correspondence with the Deputy Commissioner to understand the basis on which it was issued.

We agree with the submission of Mr Nolan of Counsel for the petitioning creditor that the material at first instance did not disclose any other sufficient cause within the meaning of sub-s. 52(2)(b) of the Bankruptcy Act not to make a sequestration order. 
The onus of proof of such other sufficient cause was on the debtor.

In all the circumstances, we have not been persuaded that there has been any miscarriage of the learned primary Judge's discretion to which we have referred.  Nor can we detect any error in the exercise of his Honour's discretion to make an order as to costs having the effect that they should follow the event. Indeed, had the members of this Court been required to exercise each of those discretions for ourselves, we would each have come to the same conclusion as his Honour.  In the result, the appeal must be dismissed.

The order for costs will be that the respondent's costs of the appeal be costs of the petitioning creditor in the application of s. 109 of the Act.

I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment of their Honours Ryan, Heerey and Carr JJ.

Associate:

Date:

Counsel for the Appellant     : Debtor in person

Solicitors for the Appellant :  Debtor in person

Counsel for the Respondent   :  Mr J.A. Nolan

Solicitors for the Respondent   :  Australian Government Solicitor

Date of Hearing               : 7 March 1996

Date of Judgment            :  7 March 1996