Bancroft & Bancroft
[2024] FedCFamC2F 397
•28 March 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Bancroft & Bancroft [2024] FedCFamC2F 397
File number(s): MLC 1416 of 2020 Judgment of: JUDGE HARLAND Date of judgment: 28 March 2024 Catchwords: FAMILY LAW – PRACTICE & PROCEDURE – Commissioner of Taxation application to intervene – whether or not the Commissioner has waived that right or is estopped from doing so Legislation: Family Law Act 1975 (Cth) ss 75(2), 75(2)(ha), 79(10), 92
Superannuation Guarantee (Administration) Act 1992 (Cth) ss 33, 37, 40, 65
Legal Services Directions 2017
Cases cited: Commissioner of Taxation & Worsnop and Anor [2009] FamCAFC 4
Dalton & Dalton [2017] FamCAFC 78
Expense Reduction Analysts Group Pty Ltd and Ors v Armstrong Strategic Management and Marketing Pty Limited and Ors (2013) 250 CLR 303
Henley & Bestori [2024] FedCFam1A 12
Newbon v City Mutual Life Assurance Society Ltd [1935] 52 CLR 723
Sidhu v Van Dyke [2014] HCA 19
Division: Division 2 Family Law Number of paragraphs: 78 Date of hearing: 28 February 2024 Place: Melbourne Solicitor for the Applicant Mr Metlej of Craddock Murray Neumann Lawyers The First Respondent Litigant in person Counsel for the Second Respondent Mr Salamanca Solicitor for the Second Respondent RRR Lawyers ORDERS
MLC 1416 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: COMMISSIONER OF TAXATION OF THE COMMONWEALTH
Applicant
AND: MR BANCROFT
First Respondent
MS BANCROFT
Second Respondent
ORDER MADE BY:
JUDGE HARLAND
DATE OF ORDER:
28 MARCH 2024
THE COURT ORDERS THAT:
1.Leave be granted to the Commissioner of Taxation of the Commonwealth of Australia to intervene in these proceedings pursuant to section 79(10) of the Family Law Act 1975 (Cth).
2.Within 30 days, the Commissioner of Taxation file an affidavit providing a list of each individual employee’s superannuation entitlements outlining the individual:
(a)Superannuation guarantee shortfalls;
(b)Nominal interest; and
(c)Administration fee;
pursuant to the amended assessments issued under section 33 of the Superannuation Guarantee (Administration) Act 1992 (Cth) of the quarterly periods between period 1 April 2014 to 31 December 2015, 1 April 2016 to 30 June 2017, 1 October 2017 to 31 March 2019, and 1 July 2019 to 31 December 2019.
3.The proceeding is adjourned for a directions hearing on 20 May 2024 at 9.30am.
4.The application in a proceeding filed 6 November 2023 is otherwise dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
JUDGE HARLAND
The Commissioner of Taxation (“the Commissioner”) filed an application in a proceeding on 6 November 2023 seeking orders as follows:
1.Leave be granted to the Commissioner of Taxation of the Commonwealth of Australia to intervene in these proceedings pursuant to section 79(10) or in the alternative section 92 of the Family law Act 1975 (Cth).
2. As part of any final property settlement or orders between [Mr Bancroft] and [Ms Bancroft], this Honourable Court:
(a) Take into account the tax-related liabilities of [Mr Bancroft];
(b) Make provision in the final orders for the payment of the tax-related liabilities of [Mr Bancroft].
3. Such further or other orders as this Honourable Court deems fit.
For the purposes of the application in a proceeding, the Commissioner is the applicant. The first respondent is the husband. He is self-represented and currently incarcerated. His position is that he thought the case had essentially resolved and feels that the wife is now resiling from that previous position. The situation is more complex than that. The second respondent is the wife. She opposes the application.
The approach the Commissioner took is to seek orders in the alternative with respect to s79(10) and s92 of the Family Law Act 1975 (Cth). The submission with respect to intervene pursuant to s92 is unhelpful given that it is clear that the Commissioner is entitled to intervene pursuant to s79(10) due to there being a risk that the Commissioner will not be able to recover tax owed.
DOCUMENTS RELIED ON
The Commissioner relied on the following documents:
(1)Application in a Proceeding filed on 6 November 2023;
(2)Affidavit by Mr C, Australian Public Servant at the Australian Tax Office, filed 6 November 2023; and
(3)Outline of Case filed 16 February 2024.
The husband did not file any material.
The wife relied on the following documents:
(1)Amended Response to an Application in a proceeding filed 17 February 2024;
(2)Affidavit of Mr Prakash Raniga, Principal at RRR Lawyers, filed 19 February 2024;
(3)Affidavit of Mr D, Principal at E Pty Ltd, filed 20 February 2024; and
(4)Amended Outline of Case filed 27 February 2024; and
(5)Contentions on behalf of the wife.
CHRONOLOGY OF THE PROCEEDINGS
To place this dispute in context, it is necessary to set out some of the chronology and exchanges of correspondence.
The husband filed an initiating application on 11 February 2020 seeking final property orders. The wife in her response filed 24 March 2020 sought both final parenting and property orders.
The husband is the director of the company F Pty Ltd, a business which is now in liquidation. Both parties worked in the business. The wife also ran a business, G Business and later H Business.
Orders were made by consent on 11 October 2021 for the parties to jointly notify the Australian Tax Office (“ATO”) of these proceedings within 14 days.
A joint letter to the Commissioner from the parties’ solicitors dated 8 November 2021 is annexed to Mr Raniga’s affidavit. That letter refers to a notice from the Commissioner to F Pty Ltd dated 6 July 2021 seeking $149,539.74 for unpaid employee superannuation payments. The letter informed the Commissioner of the parties’ disparate positions. Significantly, the letter states that the husband is incarcerated and has no personal capacity to pay the debt and may face bankruptcy upon his release. This letter is significant as it shows that the parties were aware of how much the ATO was seeking. As at November 2023, the total amount payable was $153,105.66. I do not know what the increase represents.
The letter also referred to the wife’s position being that the debt should not be paid from the matrimonial pool noting that the pool only consists of proceeds of sale of the former matrimonial home being $243,347.38. The letter states that if the Commissioner fails to intervene:
“then it may well be that Her Honour will disregard the debt owed to you and that it will become unrecoverable.”
This is repeated in other correspondence. As I will discuss below, it is a misstatement of the law.
The letter ends asking the Commissioner to consider waiving penalties and administrative fees and that there be an amnesty with respect to any further penalties and interest unless the matter is resolved or the Commissioner joins the proceedings. It is clear from this that the parties believed that a portion of the amount sought was interest and penalties and that would continue to accrue in addition to the debt owing for failing to pay superannuation. When there is a debt owing to the Commonwealth whether it be to the ATO or Services Australia, it is not unusual for a significant portion of the liability being due to interest and penalties that continues to accrue whilst the debt remains unpaid. It was reasonable for the parties and their family law solicitors to believe that to be the case here.
The husband’s then solicitors sent a further letter to the ATO on 22 April 2022. They referred to the final hearing being adjourned largely because of the disputed tax debt and also referred to the letter again being notice pursuant to the rules.
Neither letter was responded to. There is no explanation for this.
The wife’s solicitors wrote to the husband’s solicitors on 11 August 2022, referring to the ATO not being interested and repeating the wife’s position that the husband should be solely responsible for the liability and again refers to the Court disregarding the debt.
The matter was listed for a two-day final hearing commencing on 19 September 2022. Parenting issues were finalised that day by consent and is not an issue before this Court.
The parties entered into the following orders in relation to the ATO debt and for the future distribution of the property as well as intending to equalise their superannuation interests:
7. The Husband and Wife do all acts and things to jointly engage a suitably qualified accountant (“the accountant”) within 14 days to negotiate on behalf of the Husband and the Wife, the [F Pty Ltd] in liquidation (“[F Pty Ltd] in liquidation”) debt owed to the Australian Taxation Office (reference no. […]), and the [J Pty Ltd] debt owing to [F Pty Ltd] with the liquidators for [F Pty Ltd]; and in the absence of an agreement of a suitably qualified accountant to negotiate for the parties, [K Group] be appointed to negotiate on behalf of the parties and the costs of the accountant be paid pursuant to order 9 herein.
8. That the parties shall upon receipt of written advice from the accountant as to the negotiated amounts required to discharge the debts to the Australian Taxation Office and to [F Pty Ltd] in liquidation shall (“the negotiated outstanding debts”), make payments to discharge those debts in accordance with paragraph 9 herein.
9. That from the funds held in trust by Armstrong Legal for the Husband and the Wife be disbursed in order of priority as follows:
a. the negotiated outstanding debts to the Australian Taxation Office and to [F Pty Ltd] in liquidation;
b. to pay the costs of the accountant referred to in order 7 herein;
c. a sum of $50,000.00 to [Ms L] in full discharge of all and any debt said to be outstanding to her by the parties;
d. discharge the following joint liabilities in the names of the parties:
i. CBA joint credit card (approximately $4,884.84;
ii. Westpac credit card ( approximately $1,172.99);
iii. Westpac [credit] card (approximately $2,100.00);
iv. Mastercard (approximately $5,414.87);
v. Westpac Personal Loan (approximately $28,000.00);
e. the balance to the Wife (paid at first instance to RRR Lawyers).
I was unable to finalise proceedings due to the outstanding ATO debt, noting this was not clarified at the time, and made the following notations:
A.That court is satisfied that the Orders proposed are just and equitable in the circumstances.
B.The court was unable to make Final Property Orders today in relation to superannuation until the ATO debt has been clarified. The parties intend to equalise their superannuation interest.
C.The matter was adjourned for mention to allow for the parties to seek clarification in order to effect a superannuation split.
Both parties were represented by Counsel at the final hearing. Submissions were made that the property aspect of proceedings had settled on the basis that the parties will engage a joint accountant to negotiate with the ATO and receiver of the husband’s business, F Pty Ltd.
Counsel indicated that procedural fairness had been afforded to the superannuation fund, however, do not reflect the outcome reached at the final hearing. Counsel for the wife had raised the difficulty of the parties’ intention to equalise the superannuation as the payment of the ATO debts would affect the remaining balance of the superannuation to be distributed.
Counsel for the husband made submissions with respect to justice and equity and that due to the valuation of F Pty Ltd being zero and the owing of approximately $35,000 from the wife’s company to the husband’s company, the asset pool itself was so small and that the case could be categorised as a debt case.
Having read the material for trial, I was satisfied the proposed orders were within the range of what is just and equitable when considering the length of their relationship and their contributions. The purpose of notation A was to save the parties costs with respect to further Court events or the expense of drafting.
The matter was subsequently adjourned for mention before me on 5 December 2022.
The wife’s solicitors wrote to Chambers on 28 November 2022 attaching a signed minute of consent seeking orders in accordance with orders 7 and 8 of the Orders made 19 September 2022 to authorise the release of Court documents to the jointly appointed entity, E Pty Ltd, and an adjournment until E Pty Ltd can negotiate the tax debt with the ATO.
Orders were made in Chambers on 30 November 2022 adjourning the mention on 5 December 2022 to 6 March 2023. The following order was made in accordance with the signed minute:
2.The parties have leave to forward the required documents to the appointed [E Pty Ltd], tax debt negotiators, in order to enable them to make the relevant submissions to the Australian Taxation Office to reduce the penalty fees and charges in relation to the tax debt of the applicant Husband’s company, [F Pty Ltd].
Orders were made in Chambers on 6 March 2023 adjourning the matter for further directions hearing on 3 July 2023 as well as the following order:
2.Liberty is granted to provide a joint letter to chambers attaching a letter of authority from the [E Pty Ltd] detailing the exact orders they are seeking and orders to this effect can be considered in chambers.
I also noted the following:
A.The [E Pty Ltd] have indicated to the Respondent’s Solicitors that they require express authority for their actions on behalf of the company and orders of this court may be sought to this effect.
B.The Parties agree for the authority to be provided to [E Pty Ltd].
In compliance with order 2 of the Orders made 6 March 2023, Chambers received correspondence from the wife’s solicitors on 9 March 2023 attaching a letter from E Pty Ltd dated 8 March 2023, seeking that an order be made explicitly authorising E Pty Ltd to act on behalf of the parties. Orders were made in Chambers on 9 March 2023 to this effect:
1.The parties authorise [E Pty Ltd] to undertake negotiations with the ATO regarding the penalties, fees and charges owed to the Australian Taxation Office (‘ATO’) by the applicant Husband’s company, [F Pty Ltd] in liquidation. This order authorises [F Pty Ltd] with an express authority to act on behalf of that company while in liquidation to continue negotiations with the ATO.
On 27 June 2023, the wife’s solicitors wrote to Chambers seeking a further adjournment due to the ATO seeking express authority from both parties, in particular the husband’s mother who is the father’s nominated power of attorney. The ATO noted that order 2 of the Orders made on 30 November 2022 authorised E Pty Ltd to make the relevant submissions to the ATO with respect to F Pty Ltd only and is silent as to E Pty Ltd having authorisation to negotiate regarding matters to do with the parties themselves. In support of the adjournment request, the solicitor for the wife provided a copy of correspondence between the ATO and E Pty Ltd dated 22 June 2023.
Orders were made on 29 June 2023 adjourning the matter for mention on 6 November 2023 and noted the following:
A.The matter was adjourned in the circumstances where the parties have appointed [E Pty Ltd] to negotiate with the ATO. The ATO has now sought for [Mr Bancroft’s] Power of Attorney to provide the required authorisation.
The parties engaged Mr D from E Pty Ltd to negotiate with the ATO on their behalf. Mr D refers to having had several exchanges with the ATO, noting that F Pty Ltd was now in liquidation and refers to the ATO choosing to issue a director’s penalty notice. It is apparent that Mr D said the negotiations were of a misunderstanding, referring to the debt only being payable from the husband’s share of the net proceeds of sale, whereas the wife argues that he should not receive any of the net proceeds.
Mr D applied for a formal compromise on behalf of the parties to which the ATO responded refusing the compromise proposal citing concerns around the superannuation guarantee charge related liabilities and that they intended to direct the litigation and legal services area to take urgent steps to have the Commissioner joined as a party to the proceedings. Mr D advised the wife’s solicitor that the Commissioner would use the joining as a party to the proceedings to clarify with the Court that they do not intend to pursue the wife for her share of the net proceeds of sale of the property and will settle their claim solely against the husband’s share.
It is clear from the correspondence exchanged with the ATO that the panel was concerned about the public policy aspects of the superannuation guarantee surcharge and acknowledged that the ATO was previously invited to join the family law proceedings.
There is no explanation as to why the Commissioner took so long to join the proceedings despite being aware of the urgency. In an email to the ATO dated 30 June 2023, Mr D refers to his instructions being to offer the husband a 50% share of the net proceeds of sale in satisfaction of the outstanding liability and that his share would be up to $135,000. Mr D shows a misunderstanding of the parties’ positions. The email exchanges between Mr D and Mr C shows both of them erroneously assuming that Mr Bancroft would receive 50% of the net proceeds of sale. After an identification and assessment of the parties’ existing legal and equitable interests, the assessment of the parties’ contributions and s75(2) factors, the Court may well conclude that the net proceeds of sale be divided in some other manner.
The wife’s solicitors wrote to Mr C copying in Mr D to state that the parties had essentially reached a settlement in the Orders of 19 September 2022 and that those Orders did not make provision for the husband to receive any of the net proceeds of sale. It expressed the view that as the husband was not entitled to any of the net proceeds of sale there is no purpose in the joinder, problematically this assumes that the Court is still in a position to adopt the September 2022 Orders as Final Orders. This ignores the fact that order 9 refers to the negotiating outstanding debt being paid to the ATO. Clearly, it was contemplated by the parties that there would be some sort of payment to the ATO. The reality is that there is no negotiated debt.
Furthermore, order 9(d) identified various credit card debts and a personal loan that was also to be paid from the net proceeds of sale. During the final hearing, the wife’s Counsel confirmed that none of the proceeds of sale had been distributed. Presumably, the liabilities listed have increased because of ongoing interest charges. Part of the compromise was also to pay the husband’s mother $50,000 in repayment of an alleged loan. Given the inability to negotiate a tax liability, in my view, the parties cannot be held to the terms of the Orders of 19 September 2022 which may well no longer be just and equitable.
Solicitors for the Commissioner wrote to the wife’s solicitors on 1 November 2023, referring to previous correspondence, and referred to interpreting the 19 September 2022 orders differently. They refer to the Orders providing that the tax liability be paid in priority to all other debts. That may be so, but it is also clear that the parties were expecting to be able to negotiate a significantly lesser amount.
The last part of the letter from the Commissioner’s solicitors is aggravating as it unhelpfully says the Commissioner was not a party and therefore is not bound by the Orders. That may be so, but there is no acknowledgement of the fact that the Commissioner had been invited to join the proceedings some two years before. Finally, they state “we invite the parties to make a proposal for payment to our client for the full amount outstanding.” That is unhelpful.
On 3 November 2023, Chambers received an email from the solicitor on behalf of the Commissioner notifying of the Commissioner’s intention to intervene in the proceedings. The application to intervene was filed on 6 November 2023 and listed for interim hearing on 28 February 2024.
POSITION OF THE COMMISSIONER
The Commissioner’s position is that he has only sought to intervene when it has become apparent that there is a real risk that the debt owed will not be repaid, and pointed out that commonly the Commissioner decides not to intervene in proceedings such as this, which is true. What is somewhat aggravating about the Commissioner’s position is that much of the delay has been due to slowness to respond to correspondence. The Commissioner is obliged to act as a model litigant. The Commissioner’s submissions somewhat misunderstood the stage that the proceedings had reached and was assuming that it is inevitable that there would be a final hearing.
What is of some concern to me is the fact that the Commissioner submits that the parties and their solicitors have been operating under a misapprehension as to the nature of the debt. The Commissioner’s solicitor advocate submitted that unlike other tax debts, the director penalty liabilities do not attract and do not accrue the general interest charges that other tax debts do and that this is not a case where there are interest and penalty charges that the Commissioner can choose to waive. This was first raised in oral submissions at the interim hearing despite the correspondence from the wife’s solicitors to Mr D showing a clear misapprehension of the nature as they erroneously believed there was added interest and penalties. This is compounded by the fact that they did not respond to correspondence in a timely manner. Why did the Commissioner not point this out to the parties in correspondence? The other question is why was this not something Mr D addressed with the parties?
It is necessary therefore to consider the nature of the tax debt. The ATO issued a director’s penalty notice to the husband on 29 May 2023, totalling $153,105.66 owing in tax-related liabilities for failure to pay the superannuation guarantee as required. The breaches relate to quarterly periods from 1 April 2012 to 31 December 2019.
POSITION OF THE HUSBAND
The husband is self-represented. He is currently incarcerated and did not file material but did make brief submissions. He says his understanding was that the parties agreed on a settlement and were merely negotiating with the ATO to seek to reduce the debt owing and that the debt was to be paid from the net proceeds, other debts were to be paid, and then the remainder would be paid to the wife. He complains that the wife is now seeking to renege on that agreement and leave him with the debt.
POSITION OF THE WIFE
The wife argues that the Commissioner is estopped from joining the proceedings. In order to establish an estoppel, there must be a clear and unambiguous representation which must be intended to induce the other person into a course of conduct which must result in an act or omission by the other person who suffers a detriment as a result.[1]
[1] See Newbon v City Mutual Life Assurance Society Ltd [1935] 52 CLR 723.
She also sought to argue that the September 2022 orders are effectively Final Orders. That argument has no merit as the Orders are plainly on their face interim orders.
SUPERANNUATION GUARANTEE CHARGE
An employer is required to pay an employee’s super guarantee. Failure to do so will result in the employer requiring the payment of a superannuation guarantee charge. The Superannuation Guarantee (Administration) Act 1992 (Cth) (‘Administration Act’) sets out how contributions are to be calculated in order to avoid paying a superannuation guarantee charge. In the event the employee’s super guarantee is not paid, the employer must lodge a superannuation guarantee statement for each quarter pursuant to s33 of the Administration Act.
From the quarterly periods of 1 April 2012 to 31 March 2014, and 1 January 2016 to 31 March 2016, F Pty Ltd lodged superannuation guarantee statements that were deemed by the Commissioner.
The quarterly periods between period 1 April 2014 to 31 December 2015, 1 April 2016 to 30 June 2017, 1 October 2017 to 31 March 2019, and 1 July 2019 to 31 December 2019 were amended by the Commissioner pursuant to s37 of the Administration Act. The Commissioner deposes that written notice of the amended assessments were provided to F Pty Ltd on or about the dates of issues of the notices of assessment pursuant to s40 of the Administration Act.
The requirements for a company lodging a superannuation guarantee statement prior to 1 July 2015 pursuant to s33 of the Administration Act was to contain the following information:
(a) The employer’s name and postal address
(b) The name, postal address and tax file number (if available to the employer) of each employee for whom the employer had an individual SG shortfall for the quarter
(c) The amount of each such shortfall
(d) The employer’s nominal interest component for the quarter
(e) The employer’s administration component for the quarter
(f) Before 1 July 2003, the amount of the employer’s annual national payroll for the employer’s base year if it was $1,000,000 or less
(g) The total of the employer’s individual SG shortfalls for the quarter
(h) The amount of the employer’s SGC for the quarter (which was the total of (d), (e) and (g) above.
The nine deemed superannuation guarantee statements provided by F Pty Ltd contains the names of five individuals, two of whom are the parties in these proceedings. Based on these statements alone, the husband in these proceedings is owed $11,395.30 and the wife is owed $3,625.41 in the shortfall component. The amended assessments only provide the total figure calculated and do not contain the identity of the individuals of the superannuation guarantee shortfalls are attributable to.
As the amended assessments only provide the total figure calculated, there is a significant gap in the evidence as to the amounts owing to the parties in this matter. On face value, the husband and the wife are to receive a significant portion of the $153,105.66 owed as employees of F Pty Ltd.
Section 65 of the Administration Act requires the Commissioner to deal with the amount of the shortfall component by paying the amount of the component to the employee’s superannuation fund.
The Commissioner’s oral submissions appears to assume that there is some sort of starting point that the proceeds of sale will be divided equally. This is wrong.
The Commissioner is under a duty to act as a model litigant. That is made clear by the Legal Services Directions 2017. To date, the Commissioner has been incredibly slow to respond to correspondence and even after indicating an intention to urgently seek to intervene, took a further three months to file their application. It is understandable that the parties are aggrieved by this given the delays and additional costs.
What concerns me most is that it appears the parties and solicitors have been at cross-purposes. The parties refer to the director’s penalty notice that crystallised the debt, but it is apparent from the material that the parties were aware of the approximate amount of the debt as there is reference to $149,539.74 being owed in November 2021.
The wife’s solicitors wrote to the Commissioner’s solicitors on 8 February 2024 stating that the settlement the parties reached included several addbacks of notional assets of the husband amounting to $247,990 and was why he was not to receive any of the net proceedings of sale. The letter goes on to refer to the ATO deciding to issue the director’s penalty notice to the husband after Mr D had started negotiating with the ATO. The letter annexes the wife’s case outline filed for the September 2022 trial. That case outline refers to the husband owing the ATO $147,000 and states that a “considerable proportion of this amount consists of General Interest Charge and Penalties”.
The material from the Commissioner shows that there were five employees owed superannuation including the husband and wife. Looking at the amounts of superannuation shortfalls lodged by F Pty Ltd, the total is $37,840,61. The Commissioner said that the employees who have not been paid the superannuation entitlements are also owed interest to compensate for not having their superannuation paid on time. This is different to penalty interest. It is not possible from the Commissioner’s material to tell what the interest component is. The Commissioner will need to provide that breakdown. It would be a perverse result for the Commissioner to receive $153,105.66 from the proceeds of sale only to then pay a significant portion of that sum to the husband and a lesser amount to the wife. The Commissioner’s solicitor advocate submitted that the Commissioner cannot direct repayments to particular employees. If that is the case, no doubt that will be an argument against applying the proceeds of sale to that director’s liability. Again, this point only became clear during the Commissioner’s oral submissions when his solicitor advocate said that the parties have misunderstood the nature of the tax liability.
IS THE COMMISSIONER ESTOPPED FROM INTERVENING IN THESE PROCEEDINGS?
The wife’s Counsel argued that if the application is refused there would be no need for a further hearing. I reject this submission as it is clear from the terms themselves that the September 2022 Orders are not Final Orders. There is no agreement about a negotiated sum. The wife’s Counsel also stated in her amended case outline that the Commissioner has alternate remedies if they are not joined but does not say what those are. Given the references in correspondence to the husband’s inability to pay and likelihood of bankruptcy there is real doubt about this. This engages s79(10) of the Family Law Act.
The argument put forward by the wife’s Counsel that the ATO refusing to be involved when invited to which denied the parties the opportunity to arrive at Final Orders in September 2022 cannot be sustained, nor can the argument that there would be no hardship to the ATO if its application to intervene is declined as they could still pursue the director’s penalty notice. This does not acknowledge the fact that, as was made clear with the correspondence to the ATO, the husband’s position remains that he does not have the funds to pay the debt.
Whilst the wife’s Counsel correctly submitted that the debt has crystallised, what is not clear is what is owed to each individual employee by way of interest in addition to the unpaid superannuation. I accept the wife’s criticism of the ATO with respect to the number of adjournments that have occurred due to the lack of timely responses by the ATO. This may be addressed by way of costs if such an application is made.
I am troubled by the fact that it was clear from the submissions made on behalf of the Commissioner that the Commissioner was aware that the parties had a misapprehension as to the nature of the debt and interest and penalties, but at no stage, it appears, informed the parties of their misapprehension. The Commissioner submitted that the amount sought is the primary tax debt that it is obliged to collect. It was also submitted that the ATO cannot treat the husband and wife as being in different positions to the other employees. As a matter of public policy, one concern is for the innocent employees who have not had the benefit of superannuation they were entitled to and the interest owing to them that would compensate for the delay in receiving that superannuation. This is why it is important that the ATO provide a complete breakdown of each individual so that it is clear to everyone exactly what the superannuation, interest and administrative charges are owing for each individual.
It is also concerning to me that it appears that Mr D did not appreciate the nature of the tax debt given his expertise.
The wife’s Counsel relied on the High Court decision of Sidhu v Van Dyke [2014] HCA 19 in support of their argument that the ATO is estopped by its conduct in failing to take action and silence. The High Court had to determine whether there was sufficient proof of detrimental reliance to support a claim for relief based on estoppel. I disagree.
This is not a case where the ATO has made a representation or waived the right to seek to intervene in the proceedings. There would need to be more than silence in the circumstances of this case.
In Commissioner of Taxation & Worsnop and Anor [2009] FamCAFC 4, the Full Court confirmed that a third-party creditor does not have priority over an innocent spouse, but the debt cannot be ignored either. The debt must be recognised and taken into account and balanced against the rights of the spouse. The ATO is in a different position to other creditors as it is the conduct of the taxpayer that creates the debt. There is a public interest element to tax being paid. The Commissioner being joined as a party does not place the Commissioner in a special position or priority with respect to being paid.
In Dalton & Dalton [2017] FamCAFC 78, the Full Court quoted the High Court decision of Expense Reduction Analysts Group Pty Ltd and Ors v Armstrong Strategic Management and Marketing Pty Limited and Ors (2013) 250 CLR 303 in that the nature of a waiver in the legal context is an intentional act done with knowledge whereby a person abandons a right by acting in a manner inconsistent with that right. The Full Court stated that consideration of whether or not someone has waived a right is a factual enquiry.
Whilst I accept the correctness of the statements of law regarding the principles of estoppel, I am not satisfied that either estoppel or wavier applies in the circumstances of this case.
Whilst criticisms can be made of the failure of the ATO to respond to the correspondence inviting them to intervene and the delays in responding to Mr D, it may be that the wife makes an application to the ATO to pay some of her costs incurred as a result.
In order to make out that the ATO is estopped from seeking to intervene in the proceedings, the wife would need to establish that she had been induced to rely on promises by the ATO to her detriment. The situation here is not clear-cut and the various exchanges amongst the solicitors which I have referred to in the chronology reflect the fact that there is little common understanding amongst them as to the other party's position and the nature of the tax debt itself. Even if the ATO had written to the parties indicating that it would not intervene in the proceedings, it may not be sufficient. It is also not the case that this matter can be easily resolved if only the ATO did not bring this application. The reality is that there is no agreement and given what has occurred, the Court could not restrict the parties to for example, only arguing as to the amount, if anything that should be paid to the ATO. Rather, given the passage of time and misunderstandings of the nature of the debt, there may be good grounds for arguing that the payment of the debts outlined in the September 2022 Orders and the $50,000 owed to the husband's mother all be revisited.
I also reject this submission made on behalf of the Commissioner that the parties did not need to know anything further than the amount of the debt. As is plain, there was a fundamental misunderstanding by parties as to what the debt consists of, that is still unclear.
Whilst I appreciate the frustration and stress that the parties feel, the estoppel arguments cannot be made out. The debt owing to the Commissioner is not vague or un-certain. Section 75(2)(ha) of the Family Law Act obliges the Court to consider the effect of the proposed orders on a creditor of a party to recover the debt. Subject to the requirements of Part VIIIAA being met, the Court may make orders binding third parties. The Court may find that it is just and equitable for the husband to be solely responsible for the debt, but that is a different thing to disregarding a debt.
CONCLUSION
The Commissioner and a trustee in bankruptcy do not always take up the invitation to intervene, they have to make a cost benefit analysis.
Given this, in some respects, allowing the Commissioner to intervene may assist the parties as it will now be obliged to provide that information.
I will grant the application of the Commissioner to intervene. I will also order the Commissioner to file an affidavit setting out the breakdown of the superannuation, interest, and administrative fees for each individual employee within 30 days.
I will list the matter for directions before me on 20 May 2024, which will provide the parties with sufficient time to consider the further material from the Commissioner. If the parties wish to attend a conciliation conference with a Registrar prior to the directions hearing before me, they can jointly approach chambers so that orders can be made to that effect.
Finally, I draw the parties’ attention to the recent decision of Henley & Bestori [2024] FedCFam1A 12. Given my knowledge of the terms of the proposed settlement, if the matter proceeds to trial it would be appropriate for another Judge to hear that case.
I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Harland. Associate:
Dated: 28 March 2024
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