Charitopoulos v Deputy Commissioner of Taxation - [2009] SADC 120

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
CHARITOPOULOS v DEPUTY COMMISSIONER OF TAXATION
[2009] SADC 120
Reasons for Decision of His Honour Judge Nicholson
2 November 2009
BANKRUPTCY - BANKRUPTCY COURTS - JURISDICTION AND POWERS OF COURT - GENERALLY
Appellant and respondent parties to an interlocutory appeal concerning pleading issues with the appellant’s Statement of Claim. Appellant declared bankrupt after submissions on the appeal heard but before delivering of judgment on appeal.
Held: the Court was precluded from completing and delivering judgment in the matter.
Bankruptcy Act 1966 ss 58(3)(b), ss 60(2), ss 60(5), referred to.
Cummings v Claremont Petroleum NL (1996) 185 CLR 124; Beneficial Insurance Company Ltd v Hamilton & Ors (1985) 73 FLR 347, considered.

CHARITOPOULOS v DEPUTY COMMISSIONER OF TAXATION
[2009] SADC 120
Background

The plaintiff, the Deputy Commissioner of Taxation, commenced proceedings in this Court against the defendant, Pantelis Charitopoulos, seeking the amount of $24,700 by way of penalties allegedly incurred by force of s 222AOC of the Income Tax Assessment Act 1936. This alleged liability to pay penalties arises consequent upon an allegation that a company, Fast Food Concepts Pty Ltd, of which the defendant was the director at relevant times, had failed to comply with its obligations under the Income Tax Assessment Act relating to Pay as You Go Withholding Tax.
The claim is defended and various interlocutory steps have been undertaken. On 3 September 2008, a Master of this Court refused an application brought by the defendant for leave to withdraw various purported admissions contained in its defence filed on 16 August 2007. Leave to file a further defence to this effect was also refused. The defendant appealed from this decision of the learned master and that appeal was heard by me on 17 December 2009. Both parties were represented by counsel and detailed submissions were made. I reserved judgment in the matter.
Whilst judgment remained reserved, it came to my attention that the defendant entered bankruptcy on or about 19 March 2009 and that, in accordance with ss 58(3)(b) of the Bankruptcy Act 1966, it was no longer competent for the plaintiff, as creditor, to take any fresh steps in these proceedings except with the leave of the Federal Court or of the court by which the order for bankruptcy had been made. Such leave has not been sought by the Deputy Commissioner of Taxation and, in effect, that claim is stayed. The status of the interlocutory appeal before me raises different issues. I invited the parties to make submissions, if they so wished, on whether or not I retained jurisdiction to complete and deliver a judgment on the appeal from the learned master’s interlocutory orders.
I heard preliminary submissions from counsel for the plaintiff and from counsel representing the defendant, in his own right, on 11 September 2009. The matter was adjourned to 7 October 2009 so that an invitation could be extended to the Trustee in Bankruptcy of the defendant to appear and to make submissions. There was no appearance by the trustee on 7 October 2009 and the matter was further adjourned to 28 October 2009 and the invitation renewed. On 15 October 2009, the trustee wrote to my chambers and indicated that he had no intention of continuing the proceedings currently on foot.
The matter was administratively adjourned to meet the convenience of the parties and on 2 November 2009, I heard further submissions from counsel for the plaintiff and counsel for the defendant, again in his own right. In this respect, there was no objection from counsel for the plaintiff and in so far as is necessary I gave leave to counsel for the defendant to appear and make submissions on this limited topic.
I am also satisfied, as a result of the correspondence entered into with the Trustee in Bankruptcy, that he is operating on the basis that the proceedings by the plaintiff in this matter, in effect, have been stayed and that the Trustee has no intention of seeking to continue the interlocutory proceedings currently on foot on behalf of the bankrupt.
At the conclusion of the hearing, on 2 November 2009, I delivered my decision in this matter in the terms as set out in the final paragraph of these reasons. With the consent of counsel, I indicated that my reasons for this decision would be provided to the parties shortly thereafter. These are those reasons.
Is the Court Precluded from Completing and Delivering Judgment?
I have not set out in this judgment the helpful submissions made by counsel. I mean no disrespect by this. They are set out in the transcript of the hearings on 11 September and 2 November 2009. With the assistance of these submissions, I have formed a clear view on the matter that is now before me and I will endeavour to set that out as succinctly as possible.
The question of whether or not I am precluded, in the circumstances of this matter, from completing and delivering judgment on the interlocutory appeal rests on the proper construction of ss 60(2) of the Bankruptcy Act 1966 which provides:
An action commenced by a person who subsequently becomes a bankrupt is, upon his becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
The term “action” is defined in ss 60(5) to include “any civil proceeding whether at law or in equity”. The reach of ss 60(2) includes an appeal, Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 130 per Brennan CJ, Gaudron and McHugh JJ. Cummings is also authority for the proposition that if an appeal is commenced prior to the appellant’s bankruptcy the appeal is stayed automatically pursuant to ss 60(2) subject to the question of the trustee’s election.
In my opinion, an appeal from an interlocutory judgment is just as much an “appeal” as is an appeal from a final judgment for the purposes of the definition in ss 60(5). In other words, the fact that the appeal before me is an appeal from an interlocutory judgment does not deprive it of being a “civil proceeding” within the terms of the definition and therefore an “action” within the terms of ss 60(2).
Subject to some inapplicable exceptions, ss 60(2) relates to all proceedings in which the bankrupt is the moving party provided they are commenced before the bankruptcy.
Had the defendant in these proceedings been made bankrupt after filing the appeal against the master’s decision, but before the completion of submissions and the reservation of judgment, I have no doubt that the “action”, being the appeal, would have been stayed upon bankruptcy unless and until the trustee made the election contemplated in ss 60(2). The question arises as to whether or not the appeal, in this matter, has been stayed in circumstances where judgment has been reserved and all that remains is for the judgment to be completed and delivered by the court together with the making of any consequential orders such as for costs and the like.
In Beneficial Insurance Company Ltd v Hamilton & Ors (1985) 73 FLR 347, Holland J expressed the opinion that:
… [ss 60(2)] presupposes that the state of affairs with respect to the particular piece of litigation is such that considering whether or not to make an election is still a relevant and practical matter.
Holland J held that in the circumstances before him, the court was not prevented by ss 60(2) of the Bankruptcy Act from pronouncing appropriate orders to give effect to a judgment that his Honour had already delivered in the matter.
In my view, the circumstances of Beneficial Insurance are distinguishable from those before me. There, the court had delivered final judgment on the cross claim in question and had expressed a view as to the appropriate orders to be made. The proceedings were stood over to consider the matter of final orders so as to completely dispose of the proceedings so far as possible. In coming to the conclusion that Holland J reached, his Honour was strongly influenced by the fact that the litigation in respect of the cross claim before him had been spent. In his opinion, the position in relation to the cross claim had passed the point where it was material to consider whether it ought to be prosecuted or discontinued.
However, in the matter before me, I am dealing simply with an interlocutory step along the way. The finalisation of the defendant’s interlocutory appeal in this matter can have no practical significance. The plaintiff’s cause of action is itself stayed. Counsel for the plaintiff has told the Court that his client has no interest in prosecuting the matter further, that is, in endeavouring to obtain leave to prosecute the matter further. According to counsel, the chance of his client receiving a distribution from the Bankrupt’s estate is minimal and for practical reasons, which counsel outlined during submissions, no utility would be achieved by the delivery of a judgment on the interlocutory appeal in this matter.
For these reasons, in my view, the position adopted by Holland J and his Honour’s reasoning in Beneficial Insurance does not apply to the situation before me.
Even if it did, I would be disinclined, with all due respect, to adopt it. It seems to me that the question before me is whether or not the completion and delivery of judgment on the appeal would contravene the opening words of ss 60(2), namely “an action commenced by a person who subsequently becomes a bankrupt is, upon his becoming a bankrupt, stayed …”. In this respect, I find the reasoning of the Full Court of the Supreme Court of South Australia in Gertig v Davies (2003) 85 SASR 226, particularly at [62] to [66] to be of assistance.
Gertig concerned ss 58(3)(b) of the Bankruptcy Act. That subsection provides:
(3)Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a) …
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.
The subsection is in quite different terms from those of ss 60(2). However, in my opinion, they are two sides of the same coin and serve in many respects the same underlying purpose.
In Gertig an application for an order for a set-off was made before the defendant’s bankruptcy commenced. The application, by way of the hearing of submissions on the application, continued after the defendant became bankrupt. The Full Court (Doyle CJ, with whom Mulligan J agreed) was called on to consider whether the application for the order for a set-off was the taking of a fresh step in the relevant legal proceeding, so as to fall within the proscription in ss 58(3)(b). The Chief Justice said this:
As the judge pointed out, the application for the order for a set-off was also made before the bankruptcy commenced. It was made orally by counsel for Mr Gertig on 28 August 2001. But in my view, the “fresh step” of claiming an order for a set-off was not completed on the day on which the application was made orally by counsel. That step was still being taken when the judge heard submissions on a later day. I would not read the reference to taking any “fresh step” as referring only to the oral making of the application. I would read it as extending to the hearing of the application and to the making of a decision of the application. Although the fresh step began before Mr Davies became bankrupt, it continued after he became bankrupt, and so in my opinion was still taken (in that sense) after he became bankrupt.
If I am wrong in that, and the making of the application was itself the relevant fresh step, I would nevertheless hold that the pronouncement of the order for a set-off is itself a fresh step. In other words, I would distinguish between the application and the order. I appreciate that the order is made by the Court, while the application was made by counsel for Mr Gertig. But an order pronounced on an application made by Mr Gertig remains, in my opinion, a step in the proceeding taken by Mr Gertig. In other words, I would regard an order made on application by a party as a step in the proceedings by that party. (Emphasis supplied.)
For reasons similar to those expressed by the Chief Justice in Gertig v Davies, I would regard any judgment and orders delivered on the appeal lodged by the defendant in the matter before me to be, of themselves, a step in the proceedings bought by the defendant, that is, a step in the interlocutory appeal.
Now it is true that the terminology “take any fresh step in such a proceeding” does not appear in ss 60(2). However, in my view it is necessarily embraced by the terminology of that subsection; that is, “an action commenced by a person who subsequently becomes a bankrupt is, upon his becoming a bankrupt, stayed …”
The purpose of ss 60(2) is to bring to a halt all proceedings and all aspects of proceedings commenced by a person who subsequently becomes a bankrupt unless and until the trustee makes the election as envisaged in that subsection. Subsection 60(3) provides that if the trustee does not make the election contemplated by ss 60(2) within 28 days after notice of the action is served upon him by a defendant or other party to the action, he or she shall be deemed to have abandoned the action.
The evidence before me does not permit me to make a finding as to whether or not the defendant’s action – the interlocutory appeal in this matter – has been abandoned. However, it is plain that, to this point, the trustee has made no election in writing to prosecute the action. Accordingly, in my opinion the action, represented by the defendant’s appeal from the master’s decision in this matter, remains stayed.
As such, and even if I were to be wrong on the issue of utility, I take the view that I am precluded by ss 60(2) from completing and delivering a judgment in this matter and from making any consequential orders in dealing with costs and the like.