Balnaves, Peter John v Deputy Commissioner of Taxation

[1998] FCA 1547

FEDERAL COURT OF AUSTRALIA

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG131  of   1998

BETWEEN:	PETER JOHN BALNAVES APPELLANT
AND:	DEPUTY COMMISSIONER OF TAXATION RESPONDENT
JUDGE:		VON DOUSSA J
DATE OF ORDER:		20 NOVEMBER 1998
WHERE MADE:		ADELAIDE

THE COURT ORDERS THAT:

1. The application for a stay of the sequestration order is refused.

2. The notice of motion is dismissed with costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG131 of 1998

BETWEEN:	PETER JOHN BALNAVES APPLICANT
AND:	DEPUTY COMMISSIONER OF TAXATION RESPONDENT

JUDGE:	VON DOUSSA J
DATE:	20 NOVEMBER 98
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

By notice of motion filed on 13 November 1998 the appellant seeks a stay of a sequestration order that was made against his estate by Mansfield J on 30 October 1998.  The application is brought pursuant to s 29 of the Federal Court of Australia Act 1986 (Cth) and O 52 r 17 of the Federal Court Rules. It is established by Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424, and Coleman v Lazy Days Investments Pty Ltd (1995) 55 FCR 297, that the Court has the power to grant a stay which operates beyond the period mentioned in s 52(3) of the Bankruptcy Act 1966 (Cth) (“the Act”) once a notice of appeal has been filed.

When the sequestration order was made, Mansfield J granted a stay until 12 November 1998 pursuant to s 52(3) of the Act for the purposes of allowing the appellant time to consider his position and, if appropriate, to file a notice of appeal. After the expiry of that stay, a document purporting to be a notice of appeal was filed, together with the notice of motion now before the Court. The notice of appeal seeks to set aside all the orders made by Mansfield J. The grounds of appeal are baldly stated in the notice of appeal:

“That his Honour erred in ordering a sequestration order against the estate of Peter John Balnaves”

No further particulars are given. The notice of appeal, as the supporting affidavit discloses, was filed in haste, which may account for the absence of particulars. When the matter came on for argument today, Ms Holmes, appearing for the appellant, identified two matters which she said give rise to serious questions that should be determined by a Full Court on appeal. First, it is contended that the learned judge erred in his interpretation of s 44(1)(b)(ii) of the Act. Secondly, it is contended that the learned judge erred in his consideration of an issue of set-off raised by the appellant in the course of the hearing of the creditor’s petition.

Ms Holmes argues that a stay should be granted because the refusal of a stay would have dire consequences for the appellant; his status would continue as that of a bankrupt pending the appeal, and if the appeal were successful it would be very difficult to rectify the situation.  In short, the continuation of the bankruptcy would have the effect of rendering the appeal process largely nugatory.  Those matters are, of course, entitled to considerable weight.  The approach taken by this Court on applications for stays in respect of sequestration orders pending an appeal has been to grant the stay where there is any reason to doubt that the sequestration order was correctly made or, in other terms, a stay will be granted where the appellant can demonstrate that there is a point that is arguable on appeal.  See generally, Evans v Heather Thiedeke Group Pty Ltd.

It is necessary to advert to the background facts to determine whether there is any arguable point arising from either of the proposed grounds of appeal which have been identified today. The sequestration order was made on a petition originally filed on 30 July 1997 by William Thomas Burton, who alleged an act of bankruptcy on 30 January 1997. Leave was given to the Deputy Commissioner of Taxation to be substituted as the petitioning creditor on 27 July 1998. It was not disputed before the primary judge that the appellant had committed an act of bankruptcy on 30 January 1997. What was disputed was whether there was a debt due by the appellant at the date of the act of bankruptcy to the substituted creditor which equalled or exceeded the sum of $2000, being the required amount pursuant to s 44 of the Act.

The appellant practiced as an accountant and he had done so in the course of a partnership business known as Balnaves Cooper and Co. For a period that firm was owned by Cummings Corporation Pty Ltd as trustee of a family trust. The debt alleged to be due to the substituted creditor was a debt for unpaid taxation instalment deductions which the Deputy Commissioner alleged were due pursuant to s 221F(5) of the Income Tax Assessment Act 1936 (Cth), being deductions that had been made from the wages of employees in the accounting practice in accordance with the requirements of s 221C(1A) of the Income Tax Assessment Act.

There was no dispute before the primary judge that deductions had been made from the wages of employees of the partnership business.  However, it was contended by the appellant that the deductions were made by Cummings Corporation Pty Ltd, and that the company was liable to the Deputy Commissioner of Taxation for most of the amount claimed.  The Deputy Commissioner alleged that for the period from July to December 1996 there were deductions made and an equivalent amount due to him of $10,022.91.

The appellant acknowledged that Cummings Corporation Pty Ltd had been wound up on 12 November 1996, and that he was from that date the trustee of the family trust which owned Balnaves Cooper & Co. However, he disputed he was liable for the unremitted taxation instalments before that date. As an alternative argument, the appellant contended that the deductions due and payable for the period from 12 November 1996 were not, in aggregate, in excess of $2,000. It was acknowledged that during the period from 12 November 1996 to 31 December 1996 a total of $1,909.40 instalments had been deducted, and that in the period from 1 to 30 January 1997 a further sum of $1,121.60 instalments had been deducted. However, it was argued that the latter of these two sums was not “payable” within the meaning of s 44(1)(b)(ii) of the Act to the Deputy Commissioner because the time by which payment was due to be made under s 221F(5) of the Act had not expired.

The primary judge held that the affairs of the family trust had been conducted by the appellant as its trustee from 1 December 1995.  His Honour observed that there was no evidence of any other arrangement.  As a trustee, the personal liability to remit the taxation instalment deductions to the Deputy Commissioner rested on the appellant.  Accordingly, the primary judge was satisfied that there was a debt in excess of $2,000 due at the date of the act of bankruptcy, and a sequestration order was made.

The primary judge also noted that there was in favour of the Deputy Commissioner a judgment which exceeded $2,000 for the taxation instalments.  An application had been made in the District Court to set aside that judgment.  The application had been refused.  His Honour observed that the judgment provided further support for the conclusion which he had reached.

His Honour then considered the alternative argument that the liability arose only from 12 November 1996, and concluded that for the purposes of s 44(1)(b)(ii) all the instalments deducted between the period of 12 November 1996 to 30 January 1997 were to be brought to account and in aggregate those amounts exceeded $2,000. So again the requirements necessary for the making of a sequestration order were fulfilled.

Finally, his Honour observed:

“Mr Balnaves also referred to a claim proposed to be brought by or on behalf of the Trust against the Commissioner arising from an earlier transaction.  The evidence did not explain in detail the nature of that claim.  It was not put forward as a basis for showing that there was no indebtedness in respect of the tax instalment deductions.  There are apparently reasons why that claim has not been fully pursued yet.  It may be pursued in the future by the then trustee of the Trust on behalf of the Trust, notwithstanding the order I propose to make.  It does not cause me to decline the order sought.”

It is in respect of that passage in the judgment that the set-off point, if I can so call it, is now raised as a ground for the appeal.

The first observation I make in respect of the present application is that his Honour found as a matter of fact that the affairs of the trust were conducted by Mr Balnaves as its trustee from 1 December 1995, and on that footing there was a debt due to the Deputy Commissioner which exceeded $2,000 on 30 January 1997.  The grounds of appeal as enlarged today do not seek to challenge that finding.

I have looked through the evidence that was before the primary judge. There is ample evidence to support that finding on a number of different bases, and there is no evidence to suggest that Mr Balnaves was not the trustee during that period. The finding in my view is unassailable, and indeed there has been no attempt to challenge it today. Whilst that finding stands, the point of construction sought to be raised under s 44(1)(b)(ii) of the Act does not arise.

Turning to that point of construction, s 44(1)(b)(ii) does not refer to a debt being “due and payable”. The paragraph reads:

“A creditor’s petition shall not be presented agaisnt a debtor unless:…

(b)      that debt, or each of those debts, as the case may be:….

(ii)       is payable either immediately or at a certain future time;….”

The question is whether the instalments of taxation deducted from the wages of the employees in January 1997 come within the expression “payable either immediately or at a certain future time”.

The Income Tax Assessment Act, s 221C(1A), imposes an obligation upon an employer to make prescribed deductions from the earnings of an employee as the earnings are paid. The obligation then is imposed on the employer to remit those deductions to the Commissioner in accordance with the time scale set out in s 221F(5). Relevantly, in this case, the amounts deducted were required to be paid to the Commissioner not later than the seventh day after the end of the month in which the deductions were made. Thus the deductions made in January had to be paid before the seventh day of February.

In my view, the obligation to make those payments, which arose at the time that the deductions were made, plainly falls within the notion of moneys “payable…at a certain future time”.  I am unable to comprehend how any argument to the contrary could be advanced.

The second ground of appeal concerns the treatment of the set-off point by the primary judge.  As his Honour observed, the evidence did not really explain in detail the nature of that claim.  I have been informed today that the appellant asserts that he has an entitlement of some sort to recover costs in respect of an unsuccessful application that was made, I presume in the Family Court, against him to recover child support.  From the information that has been given, I assume further in his favour that the application against him was made by the Child Support Registrar in pursuance of the provisions of the Child Support (Registration and Collection) Act 1988 (Cth). I further assume that the Registrar was seeking to enforce a debt asserted to be due to him in his capacity as Child Support Registrar, a debt which is by that Act a debt due to the Commonwealth.

It is, of course, difficult to know precisely the details of such a claim when it was not advanced before the primary judge in detail and is still lacking an evidentiary base before this Court.  However, it was conceded by counsel that whilst the appellant apparently had some measure of success in defending the claim, no order for costs in his favour was made by the Court.  There being no order for costs and no more than an assertion on the appellant’s behalf that he ought to get costs or compensation of some sort in respect of his success, there is at present nothing that can be set off against the liability to the Commonwealth asserted by the Commissioner.

Further, I suspect there is another unsurmountable problem, namely that moneys due under an order for costs in the circumstances asserted by the appellant would be due from the Commonwealth in a different capacity from that in which the Commonwealth seeks to recover the taxation instalment deductions, but no argument has been presented on that point.

In my view, the matters put forward in support of the notice of motion do not raise any doubt at all as to the correctness of the reasons for judgment delivered by Mansfield J.  In my opinion no basis has been established for staying the sequestration order, and the application for a stay is refused.  The notice of motion is dismissed with costs.

I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice von Doussa 

Associate:

Dated:             20 November 98

Counsel for the Appellant:	Ms E Holmes
Solicitor for the Appellant:	von Doussas
Counsel for the Respondent:	Mr G Materne
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	20 November 1998
Date of Judgment:	20 November 1998