Cadence (90) Investments Pty Ltd v Chalmers, in the matter of Chalmers
[2021] FCCA 29
•20 January 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Cadence (90) Investments Pty Ltd v Chalmers, in the matter of Chalmers [2021] FCCA 29
File number(s): SYG 695 of 2020 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 20 January 2021 Catchwords: BANKRUPTCY – Application for sequestration order based on debtor’s failure to comply with a bankruptcy notice served outside Australia – whether at the time of the act of bankruptcy the debtor had a dwelling-house, or was ordinarily resident, or was carrying on business in Australia – creditor’s petition dismissed. Legislation: Bankruptcy Act 1966 (Cth), ss 40(1)(g), 43(1) Cases cited: Alan Turner v Ronald William Trevorrow and R and P Trevorrow Pty Ltd [1994] FCA 1091
Cadence (90) Investments Pty Ltd v Cheah, in the matter of Cheah [2021] FCCA 30
Ferguson v Federal Commissioner of Taxation [1979] FCA 29
In Re Bird v Inland Revenue Commissioners; Ex parte the Debtor [1962] 1 WLR 686
Napiat Pty Ltd v Salfinger; In the Matter of Salfinger (No 7) [2011] FCA 1322
Mathai v Kwee [2005] FCA 932
Re Australian Industrial Relations Commission; Ex Parte Australian Transport Officers Federation [1990] HCA 52
Re Brauch; Ex parte Britannic Securities and Investments Ltd [1978]; Westpac Banking Corporation v Faress [2011] FMCA 26
Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256
PP Consultants Pty Ltd v Finance Sector Union [2000] HCA 59
Theophile v Solicitor-General [1950] AC 186
Number of paragraphs: 22 Date of hearing: 27 November 2020 Place: Sydney Counsel for the Applicant: Mr M Rose, by video Solicitor for the Applicant: Johnson Winter & Slattery Counsel for the Respondent: Mr J Foley, by video Solicitor for the Respondent: Pryor Tzannes & Wallis
Table of Corrections 21 January 2021 The heading before paragraph 19 has been amended by substituting "AUSTRALIA" for "AUSTRLIA" ORDERS
SYG 695 of 2020 IN THE MATTER OF SIMON DOUGAL CHALMERS
BETWEEN: CADENCE (90) INVESTMENTS PTY LTD AS TRUSTEE OF THE GDC DISCRETIONARY TRUST
Applicant
AND: SIMON DOUGAL CHALMERS
Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
20 JANUARY 2021
THE COURT ORDERS THAT:
1.The creditor’s petition is dismissed.
2.The applicant pay the respondent’s costs as agreed or as taxed.
REASONS FOR JUDGMENT
INTRODUCTION
On 12 February 2020 the respondent, Mr Chalmers, was served in Los Angeles in the United States of America (USA) with a bankruptcy notice.[1] The bankruptcy notice was issued on the application of the petitioning creditor (Cadence). It demanded that, within 21 days after service of the bankruptcy notice, Mr Chalmers pay to Cadence $1,174,162.18. That represents the amount of a judgment Cadence recovered against Mr Chalmers in a proceeding it brought against Mr Chalmers and his partner, Ms Cheah, in the Supreme Court of New South Wales. Mr Chalmers did not comply with the requirements of the bankruptcy notice; and it is not disputed that by failing to do so by 5 March 2020 Mr Chalmers committed on that day an act of bankruptcy within the meaning of s 40(1)(g) of the Bankruptcy Act 1966 (Cth) (Act).
[1] Affidavit of K Redin 05.03.2020
Cadence consequently presented a creditor’s petition for the sequestration of the estate of Mr Chalmers relying on Mr Chalmers’ failure to comply with the requirements of the bankruptcy notice. Mr Chalmers opposes the petition on the ground that at the time he committed the act of bankruptcy he was not present in Australia, he did not have a dwelling-house in Australia, he was not ordinarily resident in Australia, and he was not carrying on business in Australia, either personally or by means of an agent or manager. For those reasons, Mr Chalmers submits, the Court cannot make a sequestration order because the jurisdictional requirements for making a sequestration order, as provided in s 43(1) of the Act, are not met in relation to him. Cadence, on the other hand, contends Mr Chalmers was ordinarily resident in Australia as at 5 March 2020. Cadence also contends Mr Chalmers had a dwelling-house in Australia, and that he was carrying on business in Australia.
The questions I consider in these reasons for judgment are whether as at 5 March 2020 Mr Chalmers was “ordinarily resident in Australia” within the meaning of s 43(1)(b)(i) of the Act; or whether as at 5 March 2020 Mr Chalmers had a “dwelling-house” within the meaning of s 43(1)(b)(i) of the Act; or whether at that date Mr Chalmers was carrying on business in Australia within the meaning of s 43(1)(b)(iii).
MEANING OF “ORDINARILY RESIDENT” AND “DWELLING-HOUSE”
Foster J reviewed the authorities on the meaning of the expression “ordinarily resident” in Napiat Pty Ltd v Salfinger; In the Matter of Salfinger (No 7).[2]
The expressions “resident” and “ordinarily resident” are not technical terms and have their ordinary English meaning (Re Taylor; Ex parte Natwest Australia Bank Limited [1992] FCA 296; (1992) 37 FCR 194 at 197 per Lockhart J). Whether a debtor is ordinarily resident in Australia is a question of fact and degree (Re Taylor at 197). It is the debtor’s settled and usual place of abode (Re Taylor at 198) – the place where he or she regularly or customarily lives (Re Taylor at 198). As Lockhart J went on to say in Re Taylor (at 158):
There must be some element of permanence, to be contrasted with a place where he stays only casually or intermittently. The expression “ordinarily resident in” connotes some habit of life, and is to be contrasted with temporary or occasional residence: see Levene (supra) and Lysaght (supra). As Lord Warrington said in Levene (at 232): “‘Ordinarily resident’ means according to the way a man’s life is actually ordered.” The concept of ordinarily resident cannot be stated in definite terms; each case must be determined on its facts and after taking into account all relevant matters: see the Canadian case of Thomson v Minister of National Revenue [1946] SCR 209 per Estey J at 231.
Where the debtor views himself or herself as living at the relevant time is an important factor in assessing his or her “ordinary residency” (Restom v Battenberg 4 ABC(NS) 474 at [47] per Stone J).
Whether a temporary absence from Australia prevents a debtor from being “ordinarily resident” here is a question of fact and degree (Re Vassis; Ex parte Leung [1986] FCA 21; (1986) 9 FCR 518 at 525 per Burchett J). Whether, at the time of departure and during the temporary absence, the debtor intends to return to live in Australia after the temporary absence is relevant to determining whether he or she is “ordinarily resident” in Australia during the absence (Re Vassis at 525).
[2] Napiat Pty Ltd v Salfinger; In the Matter of Salfinger (No 7) [2011] FCA 1322, at [73]-[75]
That a person ordinarily resides outside Australia does not necessarily prevent a finding that the person may also ordinarily reside in Australia. Graham J made that point in Mathai v Kwee:[3]
In the era of wide bodied jet aircraft it is not quite so unusual for people to be ordinarily resident in more than one country. One only has to contemplate the position of tennis and golf professionals who travel away from the place or places where they are ordinarily resident so as to pursue their livelihoods and earn their incomes. Much the same can be said in respect of (say) concert pianists on the world stage who may ordinarily reside in Australia but travel extensively overseas to earn their incomes. Much the same could be said in relation to a taxation consultant ordinarily resident in Australia whose business or employment takes him to places such as Hong Kong, Singapore, Kuala Lumpur, India and England so that he may exploit his expertise. One might say of them that they “still call Australia home”.
[3] Mathai v Kwee [2005] FCA 932, at [125]
In Mathai v Kwee, Graham J also considered the meaning of “dwelling-house”. His Honour said:[4]
As I see it, a debtor will have a dwelling-house in Australia if there is a house in Australia which he uses or has used and may use as his residence and to which he may repair at his whim at any time.
[4] Mathai v Kwee [2005] FCA 932, at [116]. In this and the following six paragraphs I repeat what I say in Cadence (90) Investments Pty Ltd v Cheah, in the matter of Cheah [2021] FCCA 30
MEANING OF “CARRYING ON BUSINESS IN AUSTRALIA”
“Business” is a “chameleon-like word”;[5] and the word “is notorious for taking its colour and its content from its surroundings”.[6] As noted by Bowen CJ and Franki J in Ferguson v Federal Commissioner of Taxation, therefore, the meaning of “business” is to be ascertained from the cases:[7]
Section 6 of the Income Tax Assessment Act defines “business” stating that it includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. This does not afford much assistance in the present case. It is necessary to turn to the cases. There are many elements to be considered. The nature of the activities, particularly whether they have the purpose of profit-making, may be important. However, an immediate purpose of profit-making in a particular income year does not appear to be essential. Certainly it may be held a person is carrying on business notwithstanding his profit is small or even where he is making a loss. Repetition and regularity of the activities is also important. However, every business has to begin and even isolated activities may in the circumstances be held to be the commencement of carrying on business. Again, organization of activities in a business-like manner, the keeping of books, records and the use of system may all serve to indicate that a business is being carried on. The fact that, concurrently with the activities in question, the taxpayer carries on the practice of a profession or another business, does not preclude a finding that his additional activities constitute the carrying on of a business. The volume of his operations and the amount of capital employed by him may be significant. However, if what he is doing is more properly described as the pursuit of a hobby or recreation or an addiction to a sport, he will not be held to be carrying on a business even though his operations are fairly substantial.
[5] PP Consultants Pty Ltd v Finance Sector Union [2000] HCA 59, at [14]
[6] Re Australian Industrial Relations Commission; Ex Parte Australian Transport Officers Federation [1990] HCA 52, at [15]
[7] Ferguson v Federal Commissioner of Taxation [1979] FCA 29, at [15]
In Re Mendonca; Ex parte Commissioner of Taxation Gibbs J noted that a “somewhat wide understanding” of the words “carrying on business” has come to be established.[8] His Honour referred to two cases. The first is the judgment of the House of Lords in Theophile v Solicitor-General.[9] One of the questions in that case was whether a person who had ceased trading activities of a business he conducted in England nevertheless carried on business for the purposes of the United Kingdom equivalent of s 43(1)(b)(iii) of the Act because he had been assessed to pay an excess profit tax in connection with the profits earned in carrying on the business which remained undischarged.
[8] Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 at pages 260-1
[9] Theophile v Solicitor-General [1950] AC 186
Lord Porter, with whose speech the other members of the House of Lords agreed, held that the expression “carrying on business” covered not only the period in which trading activities occurred in England, but also any period after those activities ceased for which there remained uncollected or undischarged debts that had accrued in the course of carrying out those trading activities. His Lordship said: [10]
But the further argument still remains open to the appellant that he was not carrying on business in England within three months of the presentation of the petition and therefore was not a debtor within the meaning of the Act. In a sense it is true that the appellant was not actively carrying on business within three months of the presentation of the petition, but there is a series of cases beginning with In re Dagnall and ending with In re Reynolds which in unbroken sequence have decided that trading does not cease when, as the expression is, “the shutters are put up,” but continues until the sums due are collected and all debts paid. It is true that all the decisions have been given in respect of married women’s trading and that a distinction has been made between the earlier Acts where the expression was “as a trader” and the later where the phrase “carrying on trade” is found. But it is the later, not the earlier, phrase which has been adopted in the Act of 1914.
[10] Theophile v Solicitor-General [1950] AC 186, at pages 201-202 (references omitted)
Lord Porter further held that the debts that remained unpaid that are relevant to whether the debtor carried on business were not restricted to debts incurred in acquiring or selling goods and services in the course of the business. The word “debt” includes all debts that have been incurred because of the debtor’s carrying on business, including the assessment of an excess profit tax. Lord Porter said: [11]
There is, however, one further matter which requires consideration. In all the cases referred to, the debts which were to be paid or collected were strictly trade debts, and it is maintained that in that respect they differ from the case under appeal in that the debt claimed by the Crown to be due is in respect of excess profits tax and that such a debt is not a trade debt but a sum due for taxes and no more connected with the appellant’s business than income tax or any other tax liability. Whatever else may be said about excess profits tax, however, it is imposed upon the debtor because he has been trading, and I do not see any reason for confining trade debts to those incurred in buying or selling. In re Allen shows that they extend to liabilities incurred in incidental matters which occur during the course of carrying on the trade, including a liability for the careless driving of a servant resulting in an accident. In Dagnall’s case Vaughan Williams L.J. said: “It seems to me that trading is not completed until you have performed all the obligations that the fact of trading imposed upon you”; and this language was quoted with approval by Swinfen Eady L.J in In re Reynolds. I think it is accurate, and that the payment of excess profits tax was one of the obligations imposed on the appellant by his trading.
[11] Theophile v Solicitor-General [1950] AC 186, at pages 202-203 (references omitted)
The second case to which Gibbs J in Re Mendonca referred is In Re Bird v Inland Revenue Commissioners; Ex parte the Debtor,[12] where Harman LJ said it was: [13]
settled law that for bankruptcy purposes a bankrupt has been looked at as continuing to carry on a business in this country, even though he had in fact ceased trading, so long as any debts of the business remained outstanding.
[12] In Re Bird v Inland Revenue Commissioners; Ex parte the Debtor [1962] 1 WLR 686
[13] In Re Bird v Inland Revenue Commissioners; Ex parte the Debtor [19612] 1 WLR 686, at page 690
Next, there is the notion of “carrying on” a business. Paragraph (iii) of s 43(1)(b) of the Act requires that “the debtor” was carrying on the business. It must therefore be shown that the debtor was carrying on “his or her own business”; it “is not sufficient that the debtor was engaged as an employee in the business of somebody else”.[14] Thus the expression “carrying on business in Australia, either personally or by means of an agent or manager” does not apply to a person “who is running his company’s business, even though he [or she] be the sole beneficial shareholder and in complete control”.[15]
[14] Alan Turner v Ronald William Trevorrow and R and P Trevorrow Pty Ltd [1994] FCA 1091, at [22]
[15] Re Brauch; Ex parte Britannic Securities and Investments Ltd [1978] Ch 316, at page 328
That a person has engaged in activities in which he or she used a company or companies does not, however, preclude a finding that the person did so in the course of his or her conducting a business separate from the business of the company or companies. That is what the English Court of Appeal found occurred in Re Brauch; Ex parte Britannic Securities and Investments Ltd where the debtor was a property developer who undertook projects through separate companies.[16] Buckley LJ said:[17]
The role assumed by the debtor in these transactions was, in my judgment, certainly not confined to that of an investor in companies engaged in property developments, as he claimed. Nor was he acting in all respects merely on behalf of the companies: on the contrary I think on a true view of the evidence it would be more accurate to say that the companies were part of the machinery by which the debtor implemented his business projects. It is probable that in the course of doing so the several companies entered into contracts and incurred liabilities in respect of which the debtor could not have been made personally liable. There is no inconsistency between this and the debtor's having carried on a business which was distinct from the companies’ activities, although associated with them…
[16] Re Brauch; Ex parte Britannic Securities and Investments Ltd [1978] Ch 316
[17] Re Brauch; Ex parte Britannic Securities and Investments Ltd [1978] Ch 316, at page 336. See also the judgment of Jarrett FM (as his Honour then was) in Westpac Banking Corporation v Faress [2011] FMCA 26
EVIDENCE
Mr Chalmers has given the following evidence that is relevant to determining whether, as at 5 March 2020 he had a dwelling-house in Australia, or was ordinarily resident in Australia, or was carrying on a business in Australia.[18]
[18] Affidavit of S D Chalmers 24.06.2020
(a)Mr Chalmers was born in Sydney and resided with his parents in Canberra throughout his schooling.
(b)On 25 November 2016 Mr Chalmers was granted a visa to work in the USA. Mr Chalmers moved to Los Angeles on 2 December 2016.
(c)Mr Chalmers travelled and stayed in Australia during the periods 13 August 2017 to 26 August 2017; 9 November 2017 to 17 December 2017; 9 October 2018 to 20 October 2018; and 24 December 2020 to 4 January 2020. Mr Chalmers says he visited Australia initially because his employer had an office in Australia (which closed in January 2019) and, more recently, to visit family and friends.
(d)Mr Chalmers resided with his partner Ms Cheah in Los Angeles since 2016. He and Ms Cheah occupy an apartment under a lease to which they are both noted as lessees.
(e)Mr Chalmers does not own any residential property in Australia, and he did not own any such property on 5 March 2020.
(f)Before moving to the USA Mr Chalmers was an officer of several companies, and he operated a number of businesses in Australia. The companies of which he was an officer, or in which he owned shares, or both, are identified in a document titled “InfoTrack Australian Securities & Investment Commission” (List).[19] It lists some 24 companies. In relation to all but six of those companies, the List records the words “Ceased/Former” together with a date after the words “Cease Date”. The dates recorded are before 5 March 2020.
(g)Of the companies the List records as “Current”, Mr Chalmers says as follows:
(i)SLXA Pty Ltd operated an online clothing store. It stopped trading in October 2019, and Mr Chalmers resigned as a director and secretary by letter dated 1 January 2020.[20]
(ii)Sporteluxe Pty Ltd was placed into liquidation on 13 November 2018, and Mr Chalmers remains listed as secretary. [21]
(iii)Ox.Two Pty Ltd was an asset holding company that did not trade in its own right. It owned a boat for another company, Ox.One Pty Ltd which operated a commercial adventure vessel on Sydney Harbour. Mr Chalmers remains a director of this company, although he says he was not aware he was still listed as a director until he prepared his affidavit.[22]
(iv)Jetboats Australia Pty Ltd operated another commercial adventure vessel on Sydney Harbour. Mr Chalmers says the business was sold in about 2014, and the company ceased trading. Mr Chalmers remains a director of this company, although he says he was not aware he was still listed as a director until he prepared his affidavit.[23]
(v)TYK Holdings Pty Ltd was placed into liquidation on 11 February 2020.[24]
(vi)Sporteluxe Group Pty Ltd was placed into liquidation.[25]
[19] Affidavit of S D Chalmers 24.06.2020, annexure “G”
[20] Affidavit of S D Chalmers 24.06.2020, [18(a)]; annexure “H”
[21] Affidavit of S D Chalmers 24.06.2020, [18(b)]; annexure “I”
[22] Affidavit of S D Chalmers 24.06.2020, [18(c)]
[23] Affidavit of S D Chalmers 24.06.2020, [18(d)]
[24] Affidavit of S D Chalmers 24.06.2020, [18(e)]; annexure “J”
[25] Affidavit of S D Chalmers 24.06.2020, [18(f)]; annexure “K”
Mr Chalmers was not cross-examined; and it has not been submitted that I should not accept any of this evidence. There is nothing before me that would lead me not to accept this part of Mr Chalmers’ evidence, and I accept it.
DID MR CHALMERS HAVE A DWELLING-HOUSE AND WAS HE IN ANY EVENT ORDINARILY RESIDENT IN AUSTRALIA?
Cadence submits Mr Chalmers was ordinarily resident in Australia as at 5 March 2020 because Mr Chalmers travelled and travels on an Australian passport; he remains listed on the Australian electoral roll; and Mr Chalmers has not disavowed any intention to return to Australia. Cadence also relies on the address at Burradoo, New South Wales, Mr Chalmers’ caused to be recorded in a number of documents he lodged with the Australian Securities and Investment Commission (ASIC). Cadence submits this is a basis for finding, and I should find, that the Burradoo address is Mr Chalmers’ dwelling-house and also rely on that finding that Mr Chalmers was ordinarily resident in Australia. Counsel for Mr Chalmers, on the other hand, submits this evidence is not sufficient to ground the findings Cadence submits I should make.
I am not satisfied that Mr Chalmers’ causing to record the Burradoo address in document he submitted to ASIC is evidence on the basis of which I could rationally conclude that the property at the Burradoo address constitutes, or at any time constituted, Mr Chalmers’ dwelling-house. It is not suggested Mr Chalmers owns the property; and it is not suggested it is a place to which Mr Chalmers otherwise has or had a right to “repair at his whim at any time”. The more probable inference that is available to be drawn from Mr Chalmers’ having nominated the Burradoo address is that it is the address Mr Chalmers nominated for the purpose of receiving notices.
I am also not satisfied Mr Chalmers was ordinarily resident in Australia as at 5 March 2020. Travelling on an Australian passport, not taking action to have himself removed from the electoral roll, and his not having disavowed any intention of returning to Australia are not matters that, whether considered individually or together, are rationally capable of supporting a finding that Mr Chalmers was ordinarily resident in Australia on 5 March 2020. In any event, Mr Chalmers’ evidence I have accepted satisfies me he was not ordinarily resident in Australia. He was ordinarily resident in Los Angeles in circumstances where there is nothing to suggest he had a right to “repair at his whim at any time” to the Burradoo property or to any other property in Australia.
WAS MR CHALMERS CARRYING ON BUSINESS IN AUSTRALIA?
Cadence submits that Mr Chalmers carried on a business through the companies identified in the List. Cadence relies on Mr Chalmers having been a director or shareholder of those companies, and in his having remained a director of three of those companies. Cadence submits the circumstances are similar to those in Re Brauch and in Westpac Banking Corporation v Faress.[26]
[26] Re Brauch; Ex parte Britannic Securities and Investments Ltd [1978]; Westpac Banking Corporation v Faress [2011] FMCA 26
There are three difficulties with these submissions. First, there is no evidence that any of the companies in the List were carrying on business as at 5 March 2020. Many companies had ceased to operate before 5 March 2020. Second, Cadence has not articulated the business or businesses Mr Chalmers is said to have conduct by means of the companies, and how those companies were used as a mechanism for his carrying on any business. Third, the evidence goes no higher than showing Mr Chalmers was a director or shareholder or secretary of the companies. That by itself is not sufficient to show the companies were in the service of Mr Chalmers as opposed to Mr Chalmers being in the service of the companies. As I have already noted, it “is not sufficient that the debtor was engaged as an employee in the business of somebody else”.[27]
[27] Alan Turner v Ronald William Trevorrow and R and P Trevorrow Pty Ltd [1994] FCA 1091, at [22]
I am therefore not satisfied Mr Chalmers carried on any business as at 5 March 2020, either personally or by means of an agent or manager.
CONCLUSION AND DISPOSITION
Given I am not satisfied that on 5 March 2020, when Mr Chalmers committed an act of bankruptcy, he had a dwelling-house, he was not ordinarily resident in Australia, and he did not carry on business in Australia, the jurisdictional requirements under s 43(1) of the Act or making a sequestration order have not been satisfied. I propose, therefore, to order that the creditor’s petition be dismissed, and that Cadence pay Mr Chalmers’ costs.
I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 21 January 2021
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