D.C.T. v J.E. Barnes and D.C.T. v J.A. Barnes (No.3)
[2008] FMCA 1235
•12 December 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| D.C.T. v J.E. BARNES AND D.C.T. v J.A. BARNES (No.3) | [2008] FMCA 1235 |
| BANKRUPTCY – Application for sequestration order – whether intention to defeat or delay creditors by remaining outside of Australia – evidence from which intent may be inferred – debtors’ departing and remaining out of Australia – debtors’ children moving out of Australia – debtors’ remaining out of Australia with knowledge of assessment – recovery action against debtors – debtors’ sale of matrimonial home – debtors’ relocation of furniture and effects – debtors’ refusal to provide contact details – necessary consequences of debtors’ acts. |
| BANKRUPTCY – Jurisdictional connection with Australia – whether debtors ordinarily resident in Australia at time of act of bankruptcy – whether debtors had a dwelling house in Australia at time of act of bankruptcy. |
| EVIDENCE – Debtors affidavits previously ruled admissible – ongoing unexplained unavailability of debtors for cross-examination – weight to be given to affidavits. |
| EVIDENCE – Inferences able to be drawn where ongoing unexplained unavailability of debtors for cross-examination. |
| Acts Interpretation Act 1901 (Cth), s. 23(b) Bankruptcy Act 1966 (Cth), ss.6, 40(1)(c)(i), 43, 47(1) Federal Court Rules, O.62 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), rr.4.02, 4.04(1)(a) and (2), 4.04(1)(b), 4.05, 4.06(2),(3) and (4) Foreign Judgments (Reciprocal Enforcement) Act 1933 (UK), s.1(2)(b) Income Tax Assessment Act 1936 (Cth), s.177(1) |
| Barnes v Deputy Commissioner of Taxation (2007) 64 ATR 553; [2007] FCA 3 Barnes v Deputy Commissioner of Taxation (2007) 242 ALR 601; (2007) 67 ATR 284; [2007] FCAFC 88 Barton v Deputy Commissioner of Taxation (1974) 130 CLR 370 Deputy Commissioner of Taxation v Barnes [2008] FMCA 7 Deputy Commissioner of Taxation v Barnes (No.2) [2008] FMCA 1229 Deputy Commissioner of Taxation v Wachjo (2005) 216 ALR 682; [2005] FCA 561 Edge Technology Pty Ltd v Wang [2000] FCA 1586 Ex parte Goater, re Finney (1874) 30 LT 620 Flower v Padget (1798) 101 ER 1103 Jones v Dunkel (1959) 101 CLR 298 Re A Debtor (1952) 1 All ER 519 Re Andrews: ex parte Manning (1966) 8 FLR 56 Re Aspinall; Ex parte Gardner (1812) 35 ER 18 Re Cohen (1950) 2 All ER 36 Re Par; Ex parte Osborne (1813) 35 ER 286 Re Thai; ex parte Commissioner of Taxation (1994) 50 FCR 126 |
| Halsbury’s Laws of England (4th Edition Re-issue) Vol.8(3) |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | JOHN ERIC BARNES |
| File Number: | PEG 253 OF 2007 |
| Judgment of: | Lucev FM |
| Hearing date: | 11 September 2008 |
| Date of Last Submission: | 11 September 2008 |
| Delivered at: | Perth |
| Delivered on: | 12 December 2008 |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | JUDITH ANGELA BARNES |
| File Number: | PEG 254 OF 2007 |
| Judgment of: | Lucev FM |
| Hearing date: | 11 September 2008 |
| Date of Last Submission: | 11 September 2008 |
| Delivered at: | Perth |
| Delivered on: | 12 December 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr J C Vaughan |
| Solicitors for the Applicant: | Australian Government Solicitor |
| Counsel for the Respondents: | Mr P N Bevilacqua |
| Solicitors for the Respondents: | Butcher Paull & Calder |
ORDERS
PEG 253 of 2007
The Court orders that:
a sequestration order be made against the estate of John Eric Barnes; and
the applicant’s costs, including reserved costs, if not agreed, be taxed by a Registrar of this Court in accordance with order 62 of the Federal Court Rules, and paid from the estate of John Eric Barnes in accordance with the Bankruptcy Act 1966 (Cth),
and the Court notes that the date of the act of bankruptcy is 25 July 2007.
PEG 254 of 2007
The Court orders that:
a sequestration order be made against the estate of Judith Angela Barnes; and
the applicant’s costs, including reserved costs, if not agreed, be taxed by a Registrar of this Court in accordance with order 62 of the Federal Court Rules, and paid from the estate of Judith Angela Barnes in accordance with the Bankruptcy Act 1966 (Cth),
and the Court notes that the date of the act of bankruptcy is 21 July 2007.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 253 OF 2007
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| JOHN ERIC BARNES |
Respondent
PEG 254 OF 2007
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| JUDITH ANGELA BARNES |
Respondent
REASONS FOR JUDGMENT
As Corrected
Introduction
In two separate applications, which were heard together, the Deputy Commissioner of Taxation[1] seeks sequestration orders[2] against the estates of the respondent debtors, who are husband and wife, John Eric and Judith Angela Barnes.[3]
[1] “Deputy Commissioner”.
[2] Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”), s.43.
[3] “Mr and Mrs Barnes”.
The alleged debts relied upon by the Deputy Commissioner are for unpaid income tax, administrative penalties and general interest charges for both Mr and Mrs Barnes. The debts, supported by evidentiary certificates,[4] as at the date of hearing are as follows:
a)Mr Barnes - $1,811,054.06; and
b)Mrs Barnes - $1,183,384.62.
[4] Income Tax Assessment Act 1936 (Cth), s.177(1); Affidavits of debt of Chong, 11/9/2007, para.4.
Mr and Mrs Barnes departed Australia on 4 February 2007. They have remained out of Australia ever since. The act of bankruptcy alleged is that each of Mr and Mrs Barnes have remained out of Australia with intent to defeat or delay their creditors:[5]
a)in the case of Mr Barnes from 25 July 2007 to 13 December 2007; and
b)in the case of Mrs Barnes from 21 July 2007 to 13 December 2007.
[5] Bankruptcy Act, s40(1)(c)(i).
Issues
The main issue for determination by the Court is whether Mr and Mrs Barnes remained out of Australia between the relevant dates with intent to defeat or delay their creditors.
If the Court finds that Mr and Mrs Barnes did remain out of Australia with the intent to defeat or delay creditors two other issues arise:
a)whether there is a jurisdictional connection with Australia; and
b)whether the relevant bankruptcy formalities have been met.
If the Court decides that Mr and Mrs Barnes have not remained out of Australia between the relevant dates with intent to defeat or delay their creditors there will be no basis for the issuance of a sequestration order as the only act of bankruptcy alleged is that Mr and Mrs Barnes have remained out of Australia with intent to defeat or delay creditors.
Evidence and affidavits
Both parties accepted that affidavits filed in each of the two matters would stand as evidence in both matters, and the Court made orders accordingly.[6]
[6] Transcript, page 4.
The Deputy Commissioner relies upon the following affidavits sworn or affirmed on the dates indicated:
a)in PEG 253 of 2007:
i) Affidavit of Aris Zafiriou verifying creditor’s petition
20/11/2007
ii) Affidavit of Annalies van den Brun
14/11/2007
iii) Affidavit of Norman Gerald Edwards
15/11/2007
iv) Affidavit of Robert Henry Masters
15/11/2007
v) Affidavit of Carole Melissa Ramdhas
16/11/2007
vi) Affidavit of Fiona Biltris
20/11/2007
vii) Affidavit of Aris Zafiriou
30/11/2007
viii) Affidavit of Aris Zafiriou
20/12/2007
ix) Affidavit of Joseph Cianfrini
20/12/2007
x) Affidavit of Justin Peter Sims
29/02/2008
xi) Affidavit of Carla Kovacevic
20/03/2008
xii) Affidavit of Carla Kovacevic
27/03/2008
xiii) Affidavit of Carla Kovacevic
14/04/2008
xiv) Affidavit of Carla Kovacevic
05/05/2008
xv) Affidavit of Carla Kovacevic
30/06/2008
xvi) Affidavit of Yen-Lin Faith Chong
28/07/2008
b)in PEG 254 of 2007:
i) Affidavit of Aris Zafiriou verifying creditor’s petition
20/11/2007
ii) Affidavit of Robert Henry Masters
29/09/2007
iii) Affidavit of Annalies van den Brun
14/11/2007
iv) Affidavit of Norman Gerald Edwards
15/11/2007
v) Affidavit of Carole Melissa Ramdhas
16/11/2007
vi) Affidavit of Fiona Biltris
20/11/2007
vii) Affidavit of Aris Zafiriou
30/11/2007
viii) Affidavit of Aris Zafiriou
20/12/2007
ix) Affidavit of Joseph Cianfrini
20/12/2007
x) Affidavit of Justin Peter Sims
29/02/2008
xi) Affidavit of Carla Kovacevic
20/03/2008
xii) Affidavit of Carla Kovacevic
27/03/2008
xiii) Affidavit of Carla Kovacevic
14/04/2008
xiv) Affidavit of Carla Kovacevic
05/05/2008
xv) Affidavit of Carla Kovacevic
30/06/2008
xvi) Affidavit of Yen-Lin Faith Chong
28/07/2008
Fresh affidavits of debt and search of the National Personal Insolvency Index sworn by Yen-Lin Faith Chong on the day of the hearing were also tendered at hearing by the Deputy Commissioner.
Mr and Mrs Barnes relied in both matters upon the affidavits of:
a)Mr Barnes sworn 24 April 2008; and
b)Mrs Barnes sworn 25 April 2008.
In view of the reliance by Mr and Mrs Barnes on the above two affidavits the Deputy Commissioner also sought to refer to and place reliance upon the affidavits of:
a)Mr Barnes sworn 27 March 2008:
b)Mrs Barnes sworn 27 March 2008; and
c)Robert Butcher sworn 11 April 2008.
In Deputy Commissioner of Taxation v Barnes (No.2)[7] the issue arose as to the admissibility and weight, if any, to be given to affidavits filed by Mr and Mrs Barnes. In Barnes (No.2) the Court observed as follows:
In those circumstances, which are the circumstances here, the proper construction of the words “the Federal Magistrates Court is to give the matter in the affidavit such weight as the Federal Magistrates Court thinks fit in the circumstances” where a request to cross-examine has been given but the person has not appeared to be cross-examined, and in particular the use of the word “is”, appears to make it mandatory for the Court to admit the affidavit, whilst the use of the words “thinks fit” give the Court a discretion as to what weight is given to the matters in the affidavit. That may vary from no weight at all to the full weight that the affidavit may bear.[8]
and
[7] [2008] FMCA 1229 (“Barnes No.2”).
[8] Barnes (No.2) at para.33 per Lucev FM.
In circumstances where:
(a) the respondents have been requested to attend for cross-examination;
(b) the respondents have not attended;
(c) no efforts have been made by the respondents to attend by video link or telephone link in circumstances where the ability to do so will usually be afforded to remote witnesses by this Court;
(d) there were matters upon which the respondents might have been cross-examined;
(e) ordinarily the respondents failure to attend for cross-examination would mean that the affidavits would not be admissible in evidence (subject to any relevant Court rules); and
(f) the respondents conduct has been such (both in relation to attendance for cross-examination, and generally) as to preclude any indulgences being granted to them, …,
the Court is of the view that no weight ought to be given to the respondents’ affidavits. This view will not preclude weight being given to either of the affidavits if there are future proceedings, if either of the respondents submit to cross-examination in any such proceedings.[9]
[9] Barnes (No.2) at para.38 per Lucev FM (footnotes from original quote omitted).
Mr and Mrs Barnes continued to be unavailable for cross-examination in person or via any medium for the sequestration order hearing, notwithstanding the opportunity afforded them to do so. Counsel for Mr and Mrs Barnes had no evidence to put before the Court as to the non-appearance for cross-examination of Mr and Mrs Barnes,[10] nor was any explanation proffered. Counsel for Mr and Mrs Barnes submitted that it was accepted that the weight to be attributed to the affidavit evidence of Mr and Mrs Barnes would be affected by their failure to make themselves available for cross-examination.[11]
[10] Transcript, page 29.
[11] Transcript, page 20.
Because of Mr and Mrs Barnes’ unavailability for cross-examination numerous issues dealt with below which might have been put to them have not been able to be put to them. The failure of Mr and Mrs Barnes to make themselves available for cross-examination evinces a clear lack of preparedness to expose themselves in such a manner as might allow facts adverse to them to be found against them on the basis of direct evidence.
In the circumstances no real weight can be given to the affidavits of Mr and Mrs Barnes, except where their evidence is corroborated by evidence on behalf of the Deputy Commissioner or their evidence is adverse to their interest and supports the Deputy Commissioner’s case.
The failure of Mr and Mrs Barnes to give evidence also entitles the Court to more readily draw any inference available from the evidence of the Deputy Commissioner in support of the Deputy Commissioner’s case.[12]
The act of bankruptcy – remaining out of Australia with intention to defeat or delay creditors
[12] Jones v Dunkel (1959) 101 CLR 298 at 308 per Dixon CJ; 312 per Menzies J; and 320-321 per Windeyer J.
Law
Both parties accept the following principles applicable to this case:
a)that the act of bankruptcy constituted by remaining out of Australia within intent to defeat or delay creditors is a continuing one, and that a debtor commits an act of bankruptcy on each day the debtor remains out of Australia with the requisite intent;[13]
[13] Re Thai; ex parte Commissioner of Taxation (1994) 50 FCR 126 at 128-129 per Davies J.
b)the petitioner must allege and prove intent to defeat or delay, which is a question of fact, usually shown by inferences from all the relevant circumstances, and in relation to which conduct a presumption of intent may arise obliging the debtor to rebut the presumption;[14]
c)the requisite intent need not be a debtor’s sole intent in remaining out of the country;[15]
d)it ought to be inferred that a debtor intends the necessary consequences of the debtor’s own acts;[16]
e)awareness of an impending or anticipated liability may be sufficient, or as the High Court put it in Barton in a passage of very broad application:
The intent may exist if the debtor, unaware of his existing indebtedness, nevertheless believes in some impending indebtedness.[17]
f)it is sufficient if the intent is only to defeat or delay one creditor;[18]
g)a debtor is likely to be absent with intent to defeat or delay creditors where the debtor has so acted as to render it impossible for the creditors to ascertain the debtor’s whereabouts;[19] and
h)the absence of any honest reason for remaining overseas may be significant and the circumstances of departure and continued absence, if not explained by exculpatory circumstances, may lead to an inference that they are due to no ordinary reason, but rather to some fear of consequences awaiting in Australia.[20]
[14] Re Andrews: ex parte Manning (1966) 8 FLR 56 at 58 per Clyne J.
[15] Barton v Deputy Commissioner of Taxation (1974) 130 CLR 370 at 375 per Stephen J (“Barton”).
[16] Deputy Commissioner of Taxation v Wachjo (2005) 216 ALR 682 at 687-688 per Conti J (“Wachjo”); [2005] FCA 561 at para.21 per Conti J, citing the earlier Federal Court judgment in Edge Technology Pty Ltd v Wang [2000] FCA 1586 at para.5 per Conti J (“Edge Technology”) and Ex parte Goater, re Finney (1874) 30 LT 620.
[17] Barton at 374 per Stephen J.
[18] Barton at 374 per Stephen J; see also Bankruptcy Act, s.6 and Acts Interpretation Act 1901 (Cth), s. 23(b).
[19] Re Alice Alderson; ex parte Jackson [1895] 1 QB 183; Edge Technology at para.7 per Conti J; Wachjo ALR at 687 per Conti J; FCA at para.20 per Conti J.
[20] Barton at 376 per Stephen J.
Mr and Mrs Barnes also submit that it is necessary to have regard to the following additional matters:
a)the relevance of the nationality of Mr and Mrs Barnes, in the context of their returning home not being sufficient to raise an inference that the departure occurred with an intent to defeat or delay creditors;[21]
b)that awareness of impending liability, whilst a circumstance to be taken into account, is but one of many circumstances, and that regard must be had to the nature and potential quantum of liability as part of the context of an awareness of impending liability, and that Barton is not authority for a general proposition that awareness of impending liability is sufficient to establish the requisite intent;
c)that evidence of an intention on the part of Mr and Mrs Barnes to pay the applicant as and when they can would support an inference of innocence rather than an intention to defeat or delay creditors;[22] and
d)delaying conduct by Mr and Mrs Barnes will only satisfy the test of causing delay to creditors where it occurs with an intention to cause such delay.[23]
[21] Re Cohen (1950) 2 All ER 36 at 39.
[22] Re A Debtor (1952) 1 All ER 519 at 521 per Jenkins LJ.
[23] Flower v Padget (1798) 101 ER 1103; Re Aspinall; Ex parteGardner (1812) 35 ER 18; Re Par; Ex parte Osborne (1813) 35 ER 286.
Evidence from which intent may be inferred
The Deputy Commissioner relies on a number of circumstances to seek to establish by inference that Mr and Mrs Barnes have remained out of Australia with intent to defeat or delay creditors. These circumstances are set out below together with Mr and Mrs Barnes’ answers and the matters relied upon for them to rebut any presumption which might be said to arise.
Departing and remaining overseas
The Deputy Commissioner says that at the time Mr and Mrs Barnes departed from Australia they were aware of:
a)the ongoing audit of their income tax returns and the possibility of amended assessments being issued;[24] and
b)the judgment of the Federal Court on 9 January 2007 revealing the failure at first instance of their application to restrict the Deputy Commissioner’s application for inspection of documents considered by them to be confidential and subject to legal professional privilege.[25]
[24] Edwards’ Affidavit, 15/11/2007, paras.4-15 and annexures NGE 1 and 2; Zafiriou’s Affidavit, 30/11/20007, paras.12-14, 17-18 and 25 and annexures AZ 14, 18-19 and 23.
[25] Zafiriou’s Affidavit, 30/11/2007, para.21. The first instance judgment of RD Nicholson J is Barnes v Deputy Commissioner of Taxation (2007) 64 ATR 553; [2007] FCA 3; and on appeal, see Barnes v Deputy Commissioner of Taxation (2007) 242 ALR 601; (2007) 67 ATR 284; [2007] FCAFC 88 (“Barnes Appeal”).
The Deputy Commissioner also relies upon the fact that Mr and Mrs Barnes have remained out of Australia for more time than specified:
a)in their respective departure cards which indicated that they were Australian residents temporarily departing for six months from their date of departure on 4 February 2007;[26] and
b)longer than represented to an Australian Tax Office[27] officer through their solicitor in late March 2007, when it was said that they would return in October 2007.[28]
[26] Zafiriou’s Affidavit, 30/11/2007, annexure AZ 21.
[27] “ATO”.
[28] Edward’s Affidavit, 15/11/2007, para.17 and annexure NGE 3.
The Deputy Commissioner also said Mr and Mrs Barnes have remained out of Australia with knowledge of the amended assessments issued on:
a)14 June 2007 for Mrs Barnes; and
b)19 June 2007 for Mr Barnes. [29]
[29] Zafiriou’s Affidavit, 30/11/2007, annexures AZ 1-10.
There are other facts relevant to a consideration of this issue, namely:
a)on 26 April 2007 Mr and Mrs Barnes’ solicitor referred an ATO officer to an email from Mr and Mrs Barnes in which they referred to having commenced “new businesses in Europe”, and having recently transferred $500,000 to facilitate that course, with the consequence that they advised that “We cannot see us returning [to Australia] until late this year at the earliest”;[30]
b)on 20 June 2007 Mr and Mrs Barnes were advised in writing of the outcome of the audit and the reasons for the decision to amend the assessments;[31] and
c)on 21 June 2007 Mr and Mrs Barnes’ real estate agent advised ATO officers that Mr and Mrs Barnes were overseas and did not intend to return to Australia.[32]
[30] Edward’s Affidavit, 15/11/2007, para.20 and annexure NGE 5.
[31] Zafiriou’s Affidavit, 30/11/2007, annexures AZ 1-11.
[32] Ramdhas’ Affidavit, 16/11/2007, annexure CMR 1.
Mr and Mrs Barnes essentially submit that they had no dishonest intent in departing Australia for the United Kingdom. They submit that their departure was consistent with their:
a)having business interests in the United Kingdom namely an investment portfolio with CBA Financial Services, and the purchase of property by Barnes Development Pty Ltd, a company operating the Barnes Family Trust;[33] and
b)usual practice of residing for one half of the year in the United Kingdom and for the other half - “the warmer months” - in Australia.[34]
[33] Affidavit of John Eric Barnes, sworn 24 April 2008, paras.4 and 16(h) (“Mr Barnes’ Affidavit”).
[34] Mr Barnes’ Affidavit, para.3.
Mr and Mrs Barnes suggest that there was no deliberate misstatement of their proposed period of absence in their departure cards or time of return through their solicitors, and further, that they have remained in the United Kingdom because of:
a)their business interests;
b)Mrs Barnes’ elderly mother’s health problems; and
c)caring for terminally ill friends.[35]
[35] Mr Barnes’ Affidavit, para.16.
Mr and Mrs Barnes say that at the time of their departure from Australia:
a)they had no knowledge of a tax liability, and had not received any advice from either their solicitors or the ATO that a large tax assessment was pending;[36]
b)they were aware that the ATO was investigating some of their business affairs and that that had been ongoing from early 2005;[37] and
c)that they had received advice from their solicitors that the ATO “might issue a tax assessment but he [the solicitor giving the advice] was not sure in what amount.”[38]
[36] Mr Barnes’ Affidavit, para.9.
[37] Mr Barnes’ Affidavit, para.10.
[38] Mr Barnes’ Affidavit, para.10.
Mr and Mrs Barnes admit that they received the amended assessments issued on 14 and 19 June 2007 shortly after they were issued.[39] Mr and Mrs Barnes admit shock at the amount of the assessments.[40]
[39] Mr Barnes’ Affidavit, para.18.
[40] Mr Barnes’ Affidavit, para.30.
Mr and Mrs Barnes suggest that a statement made by their solicitor to an officer of the ATO about a return to Australia in October 2007 cannot be converted into a position of immutable positive intent on behalf of Mr and Mrs Barnes.
In addition to the business interests already referred to, namely the investment portfolio with CBA Financial Services and the purchase of property by Barnes Development Pty Ltd, a company operating under the Barnes Family Trust, Mr Barnes’ Affidavit also indicates that Mr and Mrs Barnes “remained in the UK during that period to assist in the development of a new business that our sons were starting in Europe. That business is related to the retail sale of stereo and hi-fi equipment.”[41]
[41] Mr Barnes’ Affidavit, para.16(d).
In relation to Mrs Barnes’ elderly mother’s health problems it is said that Mr and Mrs Barnes had to make arrangements to tend to her and make arrangements for her ongoing care in circumstances where she was having bouts of diabetic coma, and in addition to her diabetes, was partially deaf and blind, and old. She had carers visit three times per day. Mr Barnes says that Mrs Barnes was “extensively involved in her care.” Mrs Barnes’ mother then lived in Australia. It was planned that she return to the United Kingdom in August 2007 but her departure was delayed to October 2007 by reason of bouts of diabetic coma.[42]
[42] Mr Barnes’ Affidavit, para.16(b) and (c).
Mr Barnes also says that a close friend Frank Bowe was terminally ill and has since died. There is no more detail given in relation to Mr Bowe, the details of his illness, or when it was that he died.[43]
[43] Mr Barnes’ Affidavit, para.16(a).
In relation to a Mr Fletcher it is said that he was terminally ill and that the Barnes were in Dubai on route to Perth in February 2008 when they were advised that he was terminally ill and they returned to the United Kingdom to be with him, and that he died on 31 March 2008.[44]
[44] Mr Barnes’ Affidavit, para.16(a) and (g).
No explanation was provided as to the actual circumstances which made it necessary to return to the United Kingdom, in early February 2007 in the midst of “the warmer months” in Australia, to deal with the business interests referred to. In relation to the business interests referred to the Court notes that:
a)the investment portfolio with CBA Financial Services is with an Australian based financial institution (CBA);[45] and
b)Barnes Developments Pty Ltd (which operates the Barnes Family Trust) is an Australian registered company.[46]
[45] Biltris’ Affidavit, 20/11/2007, annexure FB 2.
[46] van den Brun’s Affidavit, 14/11/2007, para.7 and annexure AVB 4.
Furthermore, in relation to the allegedly new business being established in Europe by Mr and Mrs Barnes’ sons, whom Mr and Mrs Barnes say they were assisting:
a)the business and business activities are not described in detail, but only in the most general terms; and
b)no business records were produced. It would, the Court suggests, have been relatively easy to produce the following types of documents:
i)those related to the sale and purchase, or lease of any land, building or office associated with the new business;
ii)those associated with the purchase of business equipment and stationery;
iii)those concerning the purchase of any existing businesses to be incorporated into the new businesses;
iv)invoices for training and associated travel and accommodation expenses;
v)records of registration of company incorporation or business names in relation to the new business; and
vi)any other documents relating to governmental or statutory requirements with respect to the new business.
The nature of the business records which might have been produced is exampled by some of the set-up issues referred to by Mr Barnes in his affidavit where he indicates that a “significant portion of those monies” (monies transferred overseas) “were used in setting up that business” including:
a)investigating potential office space;
b)training both his children and other potential staff in computer systems; and
c)travel costs relating to his children flying to Brisbane to undertake work experience and training, plus associated accommodation costs and expenses.[47]
[47] Mr Barnes’ Affidavit, para.20(b)(ii)-(iv).
Records of the above type might easily have been produced. They were not.
Significantly, and notwithstanding at least two indications that they would return, first in October 2007, and then later in the year (December 2007), Mr and Mrs Barnes have never returned to Australia, and remain outside Australia to this day.
Furthermore, Mr and Mrs Barnes have not remained in the United Kingdom, if indeed they went there at all in the relevant period. Mr Barnes says that they did. However, there is evidence that indicates that they went to Monaco, not the United Kingdom. Mr Barnes gives evidence that in September 2007 the furniture from the Subiaco Property was relocated “because we were relocating our principal place of residence to Monaco.”[48] That evidence undermines the evidence that Mr and Mrs Barnes were relocating to the United Kingdom to further business interests and because of personal issues concerning the health of relatives and friends. It also scotches the suggestion that Mr and Mrs Barnes were simply returning home to the United Kingdom, they having been British citizens before they became Australian citizens in the late 1990’s.
[48] Mr Barnes’ Affidavit, para.27.
In relation to Mrs Barnes’ mother no health records were produced. There were no hospital medical records or doctor’s records produced. There was no evidence from any carers or of any caring (by way of invoices rendered, for example). Mrs Barnes gave no evidence of what her husband referred to as her extensive involvement in her mother’s care. Perhaps most telling of all is that in the period concerned Mrs Barnes did not return to Australia to further involve herself with her mother’s care, notwithstanding the seriousness of the health problems said to exist.
In relation to Mr Bowe there is no detail provided other than the fact that he was terminally ill and had died. In relation to Mr Fletcher it is said that he also was terminally ill and died, but that this occurred in February and March 2008, being outside the period that the Court is otherwise concerned with.
In circumstances where:
a)Mr and Mrs Barnes twice said that they would return to Australia in the relevant period, but did not, and have not returned since;
b)Mr and Mrs Barnes appear to have abandoned their usual practice of living six months in and six months out of Australia;
c)Mrs Barnes did not return to Australia even when her mother was seriously ill;
d)the evidence of the terminal illness and death of:
i)Mr Bowe is negligible; and
ii)Mr Fletcher is irrelevant;
e)the evidence of the alleged new business activities is generally vague and incomplete; and
f)Mr and Mrs Barnes do not appear to be residing in the United Kingdom, but in Monaco;
it is open to infer, knowing that they became aware of the amended assessments in June 2007, and that they were shocked by the amount of the amended assessments, that they may have remained out of Australia with intent to defeat or delay creditors.
The children have moved overseas
The Deputy Commissioner also relies upon the fact that Mr and Mrs Barnes’ adult sons have also left Australia: two left in May 2007 and a third in August 2007.
Mr and Mrs Barnes submit that it cannot be seriously suggested that their children leaving Australia to commence a business overseas with their parents’ involvement a dishonest intent can be inferred as opposed to rather than the ordinary incidences of family life and comforts.
There is no evidence from the children of Mr and Mrs Barnes as to why they left Australia.
There is very little evidence of the nature of the business in which Mr and Mrs Barnes and their children are involved, as discussed above.[49]
[49] See paras.33-36 above.
It is relevant to note that on 26 April 2007 Mr and Mrs Barnes’ solicitor referred to an email from Mr Barnes in which he referred to the establishment of the businesses in Europe. Mr Barnes said that:
“Whilst our entire direct family remain in Australia, including our new grandson, Judy and I will be putting a great deal of time here into these businesses.”[50]
[50] Edwards’ Affidavit, 15.11.2007, annexure NGE 5.
Within two weeks of the above email being sent to the ATO officer concerned Mr and Mrs Barnes’ 26 year old and 19 year old sons had departed Australia. They remain out of Australia.[51] A little over three months later Mr and Mrs Barnes’ eldest son, aged 27, departed Australia. He too apparently remains out of Australia.
[51] Zafiriou’s Affidavit, 30.11.2007, annexures AZ 33 and 34.
What conclusion ought to be drawn from the relatively sudden departure of Mr and Mrs Barnes’ entire family from Australia, and their remaining out of Australia, in circumstances where there was no indication that they were about to leave, or, at the time, that they were or were to be, involved in the alleged new businesses? It might be inferred that they left suddenly because they became aware of their parents’ likely (for the first two sons to leave) or actual liability (in the case of the last son to leave) under the amended assessments. There is however an insufficient factual basis from which to draw this inference with respect to Mr and Mrs Barnes’ children.
There is no evidence (to which the Court was taken) that the sons were dependent on the provision of monies from Mr and Mrs Barnes for their livelihood.
Equally, Mrs Barnes’ evidence about their involvement with the alleged new businesses in Europe is so scant that no proper conclusion can be drawn as to their involvement in the new businesses.
Of itself, the fact that Mr and Mrs Barnes’ children have left Australia, and remain overseas, is not a basis for drawing any inference as to whether Mr and Mrs Barnes have remained out of Australia with intent to defeat or delay their creditors.
Recovery action and refusal to provide contact details
The Deputy Commissioner also relies upon the fact that Mr and Mrs Barnes are aware that the Deputy Commissioner has commenced steps to recover debts owed by them to the Deputy Commissioner.[52]
[52] van den Brun’s Affidavit, 14/11/2007, annexure AVB 2.
Mr and Mrs Barnes acknowledge that significant steps have been taken by the applicant to recover the amounts of tax payable. However, Mr and Mrs Barnes say that they have taken significant steps to dispute the assessments, which steps have led to a very significant reduction in the amount assessed. Those steps are continuing via an application to the Administrative Appeals tribunal for a review of the assessments.[53]
[53] See Barnes (No.2) at paras.12 and 42 per Lucev FM.
The Deputy Commissioner also relies upon the fact that there was a refusal, through Mr and Mrs Barnes’ solicitors, to provide their contact details.[54]
[54] van den Brun’s Affidavit, 14/11/2007, paras.5-6 and annexure AVB 2.
Mr and Mrs Barnes assert that their failure to provide contact details, other than the details of their solicitors acting in Australia, does not allow the Court to draw an inference adverse to them, and in particular that they were endeavouring to hide their whereabouts from the applicant.
The refusal of Mr and Mrs Barnes to provide contact details (a refusal manifested through both their solicitors and their accountants) leaves open an inference that they were hiding their whereabouts in order to defeat or delay creditors, and in particular, so as to avoid, or at least make more difficult and thereby delay, ordinary recovery procedures.
Transfer of monies overseas
The Deputy Commissioner relies upon the fact that Mr Barnes has transferred the sum of $1.049m from Australia to the United Kingdom between July 2006 and March 2007.[55] The Deputy Commissioner says that it is telling that the transfers re-commenced in March 2007 after a six month period in which there were no transfers, and only two months after Mr and Mrs Barnes were interviewed by ATO officers. The effect of the transfer of the money to the United Kingdom has been to leave limited remaining assets in Australia, principally a bank account containing $81,877 as at 29 August 2007.[56]
[55] Zafiriou’s Affidavit, para.19 and annexure AZ-20.
[56] Biltris’ Affidavit, paras.10-15.
Mr and Mrs Barnes say that the transfer of monies overseas does not suggest dishonest intent in circumstances where Mr and Mrs Barnes have business interests overseas and reside in the country to which the monies were transferred. It is asserted that the amounts and pattern of transfer of small amounts is unremarkable, and required for Mr and Mrs Barnes in their day to day existence and to finance their family business endeavours. As indicated above the evidence about the nature of the business is so general that no real conclusion could be drawn from it even if it were accorded full weight, and it certainly does not support a rebuttal of any presumption concerning any intent to defeat or delay creditors on the part of Mr and Mrs Barnes. The suggestion that the monies were transferred to the United Kingdom where it is said Mr and Mrs Barnes were residing is contrary to the evidence set out above that they were in fact living in Monaco.
The fact that the overseas remittances commenced two months after the debtors were interviewed by ATO officers is said not to suggest knowledge of an impending and significant assessment, it being said that if that were the case, immediate and significant transfers would have commenced without the two months hiatus.
The Court notes that the transfers re-commenced after the privilege case was lost at first instance and in circumstances where on 28 March 2007, just two days after a significant $500,000 transfer (on 26 March 2007), Mr and Mrs Barnes solicitors raised with an ATO officer the issue of indemnity from prosecution in return for a waiver of privilege,[57] the loss at first instance having then been appealed.[58] The raising of the indemnity question demonstrates an awareness of impending liability[59] on the part of those acting for Mr and Mrs Barnes, and is a matter from which it might be inferred that the transfers themselves were intended to defeat or delay creditors, and from which it might also be inferred that remaining out of Australia just four months later, when the liability crystallised after amended assessments had issued, was done with the intention of defeating or delaying creditors.
[57] Edwards’ Affidavit, 15/11/2007, annexure NGE 3.
[58] Details of the cases are set out in footnote 25 above.
[59] In the sense referred to in Barton at 374 per Stephen J.
Sale of Subiaco Property and relocation of furniture and effects
The Deputy Commissioner also relies upon the fact that the Subiaco Property was listed for sale in April 2007, two months after Mr and Mrs Barnes departed from Australia with a contract of sale entered into in May 2007 for settlement in early October 2007. No mention of the intended sale appears in an email dated 26 April 2007 from Mr Barnes forwarded to the ATO by his solicitors.[60]
[60] Edwards’ Affidavit and annexure NGE 5.
The Deputy Commissioner also relies on the fact that in mid September 2007 Mr and Mrs Barnes relocated their furniture and effects from Subiaco to the United Kingdom.
Mr and Mrs Barnes submit that there was no rushed sale of Mr and Mrs Barnes’ residence in Subiaco, and that had there been an intent to dissipate assets overseas settlement would have occurred earlier than it did in October 2007. Mr and Mrs Barnes also say that it was not economically feasible to maintain a large residence that was not used regularly and where their children had left home.
There is no particular evidence before the Court from Mr and Mrs Barnes as to the domestic living arrangements in Australia of Mr and Mrs Barnes’ children.
Mr and Mrs Barnes also submit that it cannot be seriously suggested that Mr and Mrs Barnes wish to have their furniture and effects with them in the United Kingdom is consistent with a dishonest intent rather than the ordinary incidence of family life and comforts.
To some extent, the removal of furniture and effects, is a consequence of the sale of Mr and Mrs Barnes’ residence in Subiaco, and it would not be unnatural that residence having been sold for the furniture and effects to be removed to the United Kingdom.
It must however be noted that there is no evidence that furniture and effects were removed on each occasion on which Mr and Mrs Barnes returned to the United Kingdom previously. Furthermore, the removal of the furniture and effects on this occasion is not indicative of an intention by Mr and Mrs Barnes to return to Australia. If they had intended to return to Australia one imagines that at least some of their furniture and personal effects might have remained in storage in Australia.
The listing for sale of the Subiaco Property in April 2007, coming shortly after the discussions about indemnity referred to above, and the raising in the same conversation by the ATO officer of the likelihood of amended assessments,[61] allows the Court to infer that the property was listed for sale with a knowledge of impending liability, and in circumstances where the proceeds of the sale may have been removed (ultimately they were not) from Australia thereby defeating or delaying creditors. At the very least, the sale of the Subiaco Property, and the relocation of furniture and effects, are a positive indication that Mr and Mrs Barnes intended to remain out of Australia. There is no evidence that Mr and Mrs Barnes looked for alternative accommodation in Australia at any time before or during the period prior to the issuance of the creditor’s petition. Furthermore, the Court does not accept the argument put by Mr and Mrs Barnes that the taking of the proceeds of sale of the Subiaco Property by the Deputy Commissioner to be set-off against the amended assessments, affected their ability to purchase another property in Australia. That is particularly so when regard is had to the fact that Mr and Mrs Barnes’ solicitor described a transfer of $500,000 as not being a significant amount comparative to their overall wealth, and where they are paying in excess of 74,000 euro per annum in rent in Europe.
[61] Edwards’ Affidavit, 15/11/2007, annexure NGE 3.
$2m in Australian assets
The Deputy Commissioner also points to the failure of Mr and Mrs Barnes to provide details of an alleged $2m in Australian assets.[62]
[62] van den Brun’s Affidavit, paras.6 and annexure AVB 3.
Mr and Mrs Barnes say that the reference to their having $2m of assets in Australia in Mr and Mrs Barnes’ objections appears to have been an error.
Neither party dwelt on this issue, and in the circumstances, and having regard to other conclusions drawn by the Court, it is unnecessary to deal with it further. Suffice to say that in the circumstances it cannot be used to support any inference adverse to Mr and Mrs Barnes.
Necessary consequence of their acts
The Deputy Commissioner also relies upon the presumption that a person intends the necessary consequence of their acts. In this regard the Deputy Commissioner says that the following are relevant:
a)inability to contact Mr and Mrs Barnes directly by reason of their failure to provide contact details;
b)transfer of funds from Australia to the United Kingdom; and
c)the relocation of furniture and effects to the United Kingdom.
The Deputy Commissioner also says that the presence of Mr and Mrs Barnes in the United Kingdom is a matter of significance given the nature of the debt. That is because an English court will not enforce a foreign judgment or order for the payment of taxes.[63]
[63] Halsbury’s Laws of England (4th Edition Re-issue) Vol.8(3) at para.157 and cases cited at footnotes 2 and 3; Foreign Judgments (Reciprocal Enforcement) Act 1933 (UK), s.1(2)(b) as referred to in Halsbury’s at para.172.
Mr and Mrs Barnes say that there is no basis for inferring knowledge on the part of Mr and Mrs Barnes that their presence in England (or the United Kingdom) has additional significance because an English court will not enforce a foreign judgment ordering the payment of debts. Thus, by remaining in and transferring assets to the United Kingdom, the applicant says that Mr and Mrs Barnes bring about the necessary consequence of preventing the applicant recovering against them and those assets, that being a species of defeat or delay, which in accordance with the authorities, the Court ought to infer was the intention of Mr and Mrs Barnes.
The Deputy Commissioner therefore says that by remaining out of Australia and transferring assets out of Australia Mr and Mrs Barnes have brought about the necessary consequences of preventing the Deputy Commissioner from recovering against them and against those assets that have been transferred. The Deputy Commissioner says that this is a species of intent to defeat or delay a creditor from which the Court ought to infer the necessary intention.
The Court accepts that there is a presumption that a person intends the necessary consequences of their acts, and that in the circumstances of this case, those consequences support an inference that Mr and Mrs Barnes remained out of Australia during the relevant period in order to defeat or delay creditors. However, it adds little to conclusions already reached in that respect.
Conclusion re intention to defeat or delay creditors
Having had regard to the available evidence, and for the reasons set out above, the Court is satisfied that it can be inferred that Mr and Mrs Barnes sought to defeat or delay creditors by:
a)in particular, remaining out of Australia during the relevant period in the circumstances described above;
b)by transferring money out of Australia in circumstances where it can be inferred that they were aware of an impending liability;
c)their refusal to provide contact details thereby inhibiting ordinary recovery action; and
d)the circumstances of the sale of the Subiaco Property and relocation of their furniture and effects.
For those reasons the Court concludes that each of Mr and Mrs Barnes remained overseas with intent to defeat or delay their creditors (and specifically the Deputy Commissioner) during the period from 21 July 2007 (Mrs Barnes) and 25 July 2007 (Mr Barnes) to 13 December 2007, and has therefore committed an act of bankruptcy.
Finally, the Court notes that even if some of the matters sought to be relied upon by Mr and Mrs Barnes were able to be established, it is not necessary for the intention to defeat or delay creditors to be their sole intent. It is sufficient that it be an intention, which the Court has found to be the case here. Finally, the Court also notes that there is no evidence that Mr and Mrs Barnes intend to repay the current debt.
Jurisdictional connection with Australia
The Deputy Commissioner submits that the necessary jurisdictional connection is established as an act of bankruptcy if it occurred at a time when either:
a)Mr and Mrs Barnes were ordinarily resident in Australia; or
b)Mr and Mrs Barnes had a dwelling house in Australia, at least up until 25 September 2007.
In Deputy Commissioner of Taxation v Barnes[64] this Court in making a Mareva type order observed as follows:
[64] [2008] FMCA 7 (“Barnes”).
52.The evidence sufficiently establishes that Mr and Mrs Barnes ordinarily resided (prior to the departure from Australia) for a period of time in each year in both Australia and the United Kingdom. A person can be ordinarily resident in more than one country at the same time.
53.Although Mr and Mrs Barnes have remained out of Australia for a longer period than that which they indicated they would be, there is sufficient evidence for the Court to conclude that at the time of the act of bankruptcy for each of them they were still ordinarily resident in Australia. That evidence includes:
(a)the migration departure card on which Mr and Mrs Barnes indicated that they were only departing Australia temporarily;
(b)an evinced intention to return to Australia in October 2007 (through Mr and Mrs Barnes’ solicitor);
(c)that Mr and Mrs Barnes’ Subiaco Property remained their Australian residential address for corporate and personal purposes until after the date of the act of bankruptcy; and
(d)Mr and Mrs Barnes remained the registered proprietors of the Subiaco Property until 3 October 2007.
54.It may also be inferred that Mr and Mrs Barnes remain ordinarily resident in Australia even now, there being some evidence that they intended to return to Australia in very late 2007 or early 2008 (although it is not evident that they have done so), and notwithstanding the sale of the Subiaco Property. That would not be inconsistent with their past practice of residing in both Australia and the United Kingdom for part of each year, and whilst not prima facie evidence of an intention to defeat the Applicant as creditor is nevertheless still evidence of delaying of the Applicant as creditor.
55.The Court also considers that the Applicant has established a prima facie case that Mr and Mrs Barnes, at the time of bankruptcy for each of them, had a dwelling house in Australia, namely the Subiaco Property. In that regard the Court has regard to the matters set out above and also the following:
(a)Mr and Mrs Barnes’ furniture and effects remained at the Subiaco Property until at least 19 September 2007;
(b)until the redirection of mail to Mr and Mrs Barnes’ Perth accountants Mr and Mrs Barnes continued to receive mail at the Subiaco Property; and
(c)the Subiaco Property was Mr and Mrs Barnes’ mailing address until late September 2007.
56.In circumstances where Mr and Mrs Barnes owned the Subiaco Property, were entitled to return to it at any time if they returned to Australia, nominated it as their Australian address to which they would return on their return from overseas, and in which they had furniture and effects, the Court is prepared to conclude that the Applicant has made out a prima facie case that the Subiaco Property was Mr and Mrs Barnes’ dwelling house at the time of the act of bankruptcy for each of Mr and Mrs Barnes.[65]
[65] Barnes at paras.52-56 per Lucev FM (footnotes from original quote omitted).
Those observations were made in relation to an undefended application for a Mareva type order. Save, for reasons which appear above, for the comments in paragraph 53(b) of Barnes about Mr and Mrs Barnes evincing an intention to return to Australia in October 2007, the other facts are still applicable as indicating that Mr and Mrs Barnes were ordinarily resident in Australia or had a dwelling house in Australia at the time of the act of bankruptcy.
In any event, the jurisdictional connection with Australia is not a matter about which Mr and Mrs Barnes take issue.
The Court therefore finds that the necessary jurisdictional connection with Australia exists.
Formal bankruptcy requirements
The Court may make a sequestration order upon proof of the matters set out in s.52(1) of the Bankruptcy Act, and subject to the jurisdiction that makes sequestration orders under s.43 of the Bankruptcy Act and the conditions on which a creditor may petition under s.44 of the Bankruptcy Act being met.
The Applicant as petitioning creditor is also obliged to put before the Court affidavits:
a)verifying the petition;[66]
b)as to search of the records of the Court and the Federal Court as to any application in relation to the bankruptcy notice;[67]
c)of service of the bankruptcy notice;[68]
d)of service of documents required to be served under FMC (Bankruptcy) Rules, r.4.05; [69]
e)of search of the National Personal Insolvency Index no earlier than the day before the hearing date for the petition;[70] and
f)of debt on which the creditor still relies as owing.[71]
[66] Bankruptcy Act, s.47(1); Federal Magistrate’s Court (Bankruptcy) Rules 2006 (Cth), r.4.02 (“FMC (Bankruptcy) Rules”).
[67] FMC (Bankruptcy) Rules, r.4.04(1)(a) and (2).
[68] FMC (Bankruptcy) Rules, r.4.04(1)(b).
[69] FMC (Bankruptcy) Rules, r.4.06(2).
[70] FMC (Bankruptcy) Rules, r.4.06(3).
[71] FMC (Bankruptcy) Rules, r.4.06(4).
The Court is satisfied as to the matters required to be proved for the making of a sequestration order. Specifically, the Court accepts that there is:
a)an affidavit verifying the petition;
b)an affidavit of search of court records;
c)an affidavit of service of the bankruptcy notice;
d)an affidavit of service of relevant documents;
e)an affidavit of search of the National Personal Insolvency Index; and
f)an affidavit of debt still owed.
Conclusion and orders
The Court has concluded that:
a)each of Mr and Mrs Barnes has remained outside of Australia during the period from 21 and 25 July 2007 respectively to 13 December 2007 with intend to defeat or delay their creditors;
b)the necessary jurisdictional connection is established as an act of bankruptcy occurred in relation to each of Mr and Mrs Barnes at a time when they were ordinarily resident in Australia or had a dwelling house in Australia; and
c)the formal requirements for the issuance of a sequestration order have been met.
In the circumstances a sequestration order will issue against each of Mr and Mrs Barnes. The Court notes that the date of the act of bankruptcy for Mr Barnes is 25 July 2007 and for Mrs Barnes 21 July 2007, and a note to the effect will be included in the sequestration order.
The applicant’s costs, including reserved costs, if not agreed, are to be taxed by a Registrar of this Court in accordance with o.62 of the Federal Court Rules and paid from the estate of each of the bankrupts in relation to each of the relevant applications, in accordance with the Bankruptcy Act.
I certify that the preceding ninety (90) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate: Sandra Gough
Date: 12 December 2008
Amendments to paragraph 78 of the Reasons for Judgment:
Amended from:
For those reasons the Court concludes that each of Mr and Mrs Barnes remained overseas with intent to defeat or delay their creditors (and specifically the Deputy Commissioner) during the period from 21 July 2008 (Mrs Barnes) and 25 July 2008 (Mr Barnes) to 13 December 2008, and has therefore committed an act of bankruptcy.
to:
For those reasons the Court concludes that each of Mr and Mrs Barnes remained overseas with intent to defeat or delay their creditors (and specifically the Deputy Commissioner) during the period from 21 July 2007 (Mrs Barnes) and 25 July 2007 (Mr Barnes) to 13 December 2007, and has therefore committed an act of bankruptcy.
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