Bryett v Deputy Commissioner of Taxation

[1997] FCA 938

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - review of decision of Registrar not to set aside bankruptcy notice - whether Court should go behind judgment - an application to set aside such a notice - principles to be applied where debtor has not made an application to stay proceedings on a judgment debt which is under appeal

TAXATION - where tax payer claims to not have received notice of income tax assessment, whether such notice must be proved to have actually come to tax payer’s attention before tax liability arises

Income Tax Assessment Act1936 (Cth)

Re Baker; Ex parte Baker v Staples (Kiefel J, 4 September 1995, unreported), not followed
Byron v Southern Star Group Pty Ltd (Lehane J, 11 March 1997, unreported), applied
Deputy Commissioner of Taxation v Taylor 83 ATC 4539, applied
Re Geard; Ex parte Reid (Sheppard J, 11 February 1994, unreported), applied
Re Longo; Ex parte Longo (1995) 57 FCR 523, applied
Olivieri v Stafford (1989) 24 FCR 413, applied
Re Riviere; Ex parte Original Mont De Piete Ltd (1919) 20 SR (NSW) 77, applied
Wren v Mahoney (1972) 126 CLR 212, applied

CHRISTOPHER GARRY BRYETT v DEPUTY COMMISSIONER OF TAXATION

NG 7074 of 1997

MADGWICK J
5 SEPTEMBER 1997
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7074 of 1997

BETWEEN:	CHRISTOPHER GARRY BRYETT APPLICANT
AND:	DEPUTY COMMISSIONER OF TAXATION RESPONDENT
JUDGE(S):		MADGWICK J
DATE OF ORDER:		5 SEPTEMBER 1997
WHERE MADE:		SYDNEY

THE COURT ORDERS THAT:

1. The decision of the Registrar not to set aside a bankrutpcy notice be confirmed.

1. The applicant to pay the Respondent’s costs.

NOTE:SETTLEMENT AND ENTRY OF ORDERS IS DEALT WITH IN ORDER 36 OF THE FEDERAL COURT RULES.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7074 of 1997

BETWEEN:	CHRISTOPHER GARRY BRYETT APPLICANT
AND:	DEPUTY COMMISSIONER OF TAXATION RESPONDENT

JUDGE(S):	MADGWICK J
DATE:	5 SEPTEMBER 1997
PLACE:	SYDNEY

REASONS FOR JUDGMENT

On 27 August 1997 I ordered that the decision of the Registrar not to set aside a bankruptcy notice be confirmed and that Mr Bryett pay the respondent’s costs.  I reserved my reasons, which I now publish.

This was an application to review the decision of a Registrar rejecting Mr Bryett’s application to set aside a Bankruptcy Notice (NG 7074/1997) issued against him by the Deputy Commissioner of Taxation (“DCT”).

The Notice was founded on a failure to comply with a judgment entered in the DCT’s favour by a Local Court on 19 August 1996.  In the Local Court action the DCT claimed over $30,000 for income tax for the years ended 30 June 1990 to 1993 and associated statutory liabilities.  That judgment was obtained on a contested notice of motion for summary judgment; the DCT claimed, in effect, that Mr Bryett had no arguable defence.

Mr Bryett’s defence was that he was not served with the notices of assessment.  The DCT succeeded in the application for summary judgment by reliance on a certificate given under Reg. 67 of the Income Tax Regulations which stated, among other things, that the notices of the assessments had been duly served upon Mr Bryett by post.  Mr Bryett, in his original Defence, had “not admitted” service and, at the hearing he denied from the bar table, but did not give evidence, that he had not received such notices.  The presiding magistrate was apparently persuaded that there was nothing to rebut the applicable presumption of service.  Mr Bryett then took no step to appeal against or otherwise challenge the decision to enter summary judgment against him.

The Bankruptcy Notice was issued in December 1996 and served on 13 January 1997.  On 24 January, Mr Bryett applied to have the Notice set aside and on the same date applied to the Local Court to set aside the judgment earlier entered against him.  The hearing of this application to set aside the Bankruptcy Notice was adjourned, with appropriate extensions of the time for compliance with the Notice until the fate of the Local Court application could be determined.

The “set-aside” application to the Local Court was heard by another magistrate, Ms Miledge SM, on 21 February 1997.  On this occasion Mr Bryett gave evidence that he had not received the notices of assessment but he sought to make no case that the notices were not posted.  The DCT agued that, consistently with the decision of Lee J in DCT v Taylor 83 ATC 4539 the requisite service had nevertheless been proved. Again, the DCT prevailed.

Faced with this second defeat, Mr Bryett sought to appeal against Ms Miledge’s decision by requesting that she state a case for the opinion of the Supreme Court of NSW.  Mr Bryett thereafter failed to comply with procedures required by the Local Court Rules to effectuate his appeal, and was advised of this on or about 28 May 1997.  On 29 June Mr Bryett applied to the Local Court for an extension of time within which to comply with the appeal procedures, which extension was, on 13 August, ultimately granted, and the settling of the case to be stated has been listed in the Local Court for 17 October 1997.

The hearing of the application to strike out the Bankruptcy Notice had, meanwhile, been adjourned to 1 July and the Registrar then heard and dismissed the application.

There have been other, less relevant, encounters between the parties.

Thus the matter came before me as one where there was on foot an appeal against an adverse judgment (“the set-aside decision”) in an application to set aside the judgment upon which the Bankruptcy Notice was based (“the substantive judgment”), but where there was no extant appeal against the substantive judgment, and no application to stay execution upon it.

Principles

A judgment is never conclusive in bankruptcy and the court has a discretion to go behind a judgment to determine whether in truth and reality there is a debt due:  Wren v Mahoney (1972) 126 CLR 212 at 224-5. This may be done on the hearing of an application to set aside a bankruptcy notice as well as on the hearing of a petition: Re Riviere; Ex parte Original Mont de Piete Ltd (1919) 20 SR (NSW) 77 at 83-84 per Owen AJ; Olivieri v Stafford (1989) 24 FCR 413 at 429 ff per Gummow J; Re Longo; Ex parte Longo (1995) 57 FCR 523 at 530 per Cooper J. However, as Gummow J said in Olivieri:

“. . . it must be a rare case that this Court, upon an application to set aside a bankruptcy notice, will further extend time for compliance with a bankruptcy notice, so that this Court may embark upon an enquiry as to what lies behind the judgment debt, where an extension of time for compliance with the bankruptcy notice initially was granted to enable the matter to be raised in the Court in question and that Court has dismissed the application made to it by the judgment debtor.”

Those observations well enough describe the present case.

Mr Bryett sought, however, to draw comfort from the decision of Kiefel J in Re Baker; Ex parte Baker v Staples (Kiefel J, 4 September 1995, unreported).  In that case, her Honour held that, where there is a genuine and arguable appeal against the judgment finding a bankruptcy notice, it is ordinarily desirable, because of the serious consequences of non-compliance with a bankruptcy notice, to grant an extension of time to allow that judgment to be tested, and possibly set aside, on appeal.  (An appeal may be regarded as the institution of proceedings to set aside a judgment, within the meaning of para (a) of subs 41 (6A) of the Act:  Bryant v Commonwealth Bank of Australia (Full Court, 9 November 1994, unreported)). 

But, as Lehane J pointed out in Byron v Southern Star Group Pty Ltd (Lehane J, 11 March 1997, unreported), it seems that her Honour was not referred to Re Geard; Ex parte Reid (Sheppard J, 11 February 1994, unreported) which stands for a different approach and which has been followed by other judges of the Court.  In Geard, Sheppard J pointed out, among other things, that where a debtor has made no application to stay proceedings on a judgment debt which founds a bankruptcy notice and which is under appeal,

“it would seem . . . to require quite special circumstances before a court exercising jurisdiction in bankruptcy would in effect do what has not been done in [the court system] in which the judgment has been obtained by extending the time for compliance with the bankruptcy notice . . . If one were to complete the taking of such a course, one would usually require evidence of the means of the debtor and would wish to consider whether or not it were appropriate to order that security for the amount of the judgment should be provided.  These are matters which a court exercising jurisdiction to stay the execution of a judgment would wish to consider.”

Lehane J decided to follow the approach of Sheppard J, saying:

“The commission of an act of bankruptcy is, undoubtedly, a serious matter; it is, however, of a different order of gravity from the change of status brought about by the making of a sequestration order; and there is also to be taken into account the interest of both the judgment creditor and other creditors in ensuring that, if ultimately a sequestration order is made, the relevant act of bankruptcy occurs earlier rather than later.”

I respectfully agree with the approach taken by Lehane J, Sheppard J and other judges who have had Geard brought to their attention.

Course of proceedings

On the first day the matter was heard before me, Mr Bryett said that he was unaware of the decisions in Geard and Byron.  I therefore adjourned the proceedings to enable him to put on material that might indicate that he had reasonable prospects of obtaining a stay of proceedings on the substantive judgment pending the hearing of his appeal against the set-aside decision.

Mr Bryett then disclosed his financial position.  He owes certain mortgage debts jointly with his wife, and having regard to his wish not to seek access to his wife’s net interest (as between him and her) in their joint tenancy of the matrimonial home, it appears that Mr Bryett is in no position to offer security for the amount of the debt due to the respondent.  Nor did he in fact make any such proposal.  The material does not point in favour of Mr Bryett’s presently being solvent.

Conclusions

I conclude, having regard to Mr Bryett’s past delays, that his prospects of obtaining a stay, assuming an arguable case (which was not conceded) as to the merits of his appeal, are slender.

Behind the judgment

Despite the foregoing, and in case there is some error therein, it is a short exercise to “go behind the judgment” in question.

Mr Bryett’s only complaint, and his evidence, is that he did not see the notices of assessment before copies were produced on the DCT’s application for summary judgment in mid-1996.  The evidence otherwise is that the notices were served upon him on or about 1 March 1995 by post addressed to the address for service he had previously notified to the tax authorities.

Deputy Commissioner of Taxation v Taylor (1983) 2 NSWLR 139, a decision of Lee J, is authority that the Income Tax Assessment Act1936 (Cth), as it then stood, did not require that a notice of assessment must be shown to have come to the actual notice of the taxpayer before the liability to pay tax arises.  It was not submitted before me that there was any relevant change between 1983 and now to the tax legislation.  Further, I am not convinced that Lee J was wrong.  Among other things, his Honour said:

“. . . There can be no suggestion that such a scheme is not in every respect fair to the taxpayer.  It places no hardship upon him nor does it do him any injustice.  He is given the opportunity of deciding where he shall receive documents sent to him.  He can always make his own arrangements to ensure
that mail sent to the address he stipulates does in fact reach him.  The proper administration of the Act by the Commissioner with his extensive and varied powers, involving as it does a vast number of taxpayers and a continuous flow of communications from the Commissioner to taxpayers, requires that the Commissioner have available to him an address to which he can, with confidence, direct communications to the taxpayer, and what better method than to allow the taxpayer, himself, to stipulate what that address shall be (reg 27) and then provide for service by post at that address:  reg 29 and reg 59.  The regulations here are in my opinion ‘plainly necessary and convenient to give effect to the Act,’ within s 266 of the Act.”

I think that I should follow that decision.

I conclude therefore that there is a legal debt actually owed by Mr Bryett to the DCT, and that that was the debt in consideration of which the DCT obtained summary judgment, after a contested hearing, against him.  That was the judgment upon which the bankruptcy notice was based.  It is not to the point that one or other of the learned magistrates who considered aspects of the matter may have made some error as to proof or as to the test for setting aside a summary judgment obtained for the manifest lack of a real defence (although it is not clearly apparent to me that there was any such error).  It seems to me that there is “in truth and reality” a debt owing to the DCT: Wren v Mahoney (1972) 126 CLR 212 at 224, per Barwick CJ.

The application to set aside the bankruptcy notice was therefore dismissed.

Assuming I had jurisdiction to do otherwise, I also dismissed the application for a further extension of time for compliance with it.  Among other matters, Mr Bryett had already had a long time, and there was, after my “going behind” the judgment to no avail, no reason further to extend such time.  If further facts need to be pointed to, to enliven an active discretion in the Court not further to extend time (having regard to subs 6A and 6C of s 41 and the approach of Gummow J in Re Carter; Ex parte National Mutual Trustees Ltd (1995) 129 ALR 435 ff and Deane and Ellicott JJ in Streimber v Tamas (1981) 37 ALR 211), they may be found in Mr Bryett’s past failure to prosecute his appeal with due diligence, and the fact that he was already had a substantial amount of time to comply with the notice. There was no
suggestion that Mr Bryett could comply with the notice if he were given a very short further period in which to do so.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Madgwick

Associate:

Dated:            

For the Applicant:	Self represented
Counsel for the Respondent:	J Johnson
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	27 August 1997
Date of Judgment:	5 September 1997