D.C.T. v Joosse - [2004] FMCA 21

FEDERAL MAGISTRATES COURT OF AUSTRALIA

D.C.T. v JOOSSE

[2004] FMCA 21

BANKRUPTCY – Opposition to the making of a sequestration order – whether the Court should go behind the judgment to ascertain the truth of a judgment where the applicant had unsuccessfully applied to set aside the Bankruptcy Notice – extent to which Court should re-examine issues – whether adjournment should be granted where appeal against debtor not to set aside Bankruptcy Notice pending.

Bankruptcy Act 1966 (Cth), s.52
Corporations Act 1989 (Cth), ss.490, 491, 491(1), 491(2), 491(2)(a), 491(2)(b), 492
Income Tax Assessment Act 1936 (Cth)

Joosse v Deputy Commissioner of Taxation (2002) VSCA 48
Harrison v Charambous (1999) FCA 902
Wren v Mahony (1972) 126 CLR 212
Corney v Brien (1951) 84 CLR 343
Ex parte Longo (1995) 57 FCR 523
Makhoul v Barnes (1995) FCR 572

Applicant:

THE DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent:

WOLTER JOOSSE

File No:

MZ 1459 of 2003

Delivered on:

21 January 2004

Delivered at:

Melbourne

Hearing Date:

16 January 2004

Judgment of:

Bryant CFM

REPRESENTATION

Counsel for the Applicant:

Ms Riley

Solicitors for the Applicant:

Australian Government Solicitor

Counsel for the Respondent:

In person

Solicitors for the Respondent:

In person

ORDERS

The Estate of Wolter Joosse be sequestrated.
The respondent debtor pay the applicant creditor's costs pursuant to Order 62 of the Federal Court Rules 1976 including any reserved costs to be taxed in accordance with the Bankruptcy Act 1966.

IT IS NOTED THAT the date of the act of Bankruptcy is 23 September 2003.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MZ 1459 of 2003

THE DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

WOLTER JOOSSE

Respondent

REASONS FOR JUDGMENT

Introduction

The matter before me is an application by the Deputy Commissioner of Taxation ("the creditor") for the making of a sequestration order which is opposed by Wolter Joosse ("the debtor"). The petition is based upon a Judgment for $249,637.94 comprised of a Judgment obtained in the County Court of Victoria for $200,019.43, together with interest. The act of bankruptcy in respect of which the petition was issued was failure to comply with a Bankruptcy Notice deemed to have been served on 29 August 2003.

Background

The Judgment relied upon by the creditor is a Default Judgment entered in the County Court on 2 August 2001. An application to set aside the Default Judgment in the County Court was heard on

5 November 2001 and was dismissed by Holt J.
The debtor applied to the Victorian Court of Appeal for leave to appeal the decision of Holt J and on 15 April 2002 the Court of Appeal dismissed his application. The applicant subsequently sought special leave to appeal from the High Court and on 14 February 2003 the High Court dismissed the application for special leave. The Bankruptcy Notice was issued on 19 March 2003. The debtor applied to set aside the Bankruptcy Notice and on 23 September 2003 Registrar Mussett in the Federal Court dismissed the application.
The debtor then applied for a review of Registrar Mussett's decision to a single judge. Gray J treated the matter as a hearing de novo and on 29 October 2003 dismissed the application to set aside the Bankruptcy Notice. On 17 November 2003 the debtor filed a Notice of Appeal against the decision of Gray J to the Full Court of the Federal Court. The appeal has not yet been heard.
The creditor has now issued a petition and the debtor opposes the making of a sequestration order. The basis of his opposition is that the court should exercise its discretion to allow him to go behind the Judgment to determine whether there is in truth a debt owed to the creditor, or alternatively, to adjourn the proceedings until the hearing and determination of the debtor's appeal against the decision of Gray J to the Full Federal Court.
The proceeding in the County Court upon which the Judgment was entered was in respect of penalties pursuant to Divisions 8 and 9 of Part VI of the Income Tax Assessment Act 1936 (Cth) (the Income Tax Assessment Act). Such penalties were imposed by the Income Tax Assessment Act on the debtor as a director in respect of group tax estimated to be owed and unpaid by a company called Bellhop Pty Ltd. The penalties were sued for by Erin Kathleen Holland, a Deputy Commissioner of Taxation of the Commonwealth of Australia.

The decision of Justice Gray

Gray J handed down a decision on 29 October 2003. He identified three general grounds on which the debtor sought to overturn the Bankruptcy Notice.
i)The first ground was that he had a counter-claim, set-off or cross-demand that he could not have set up in the County Court proceedings.
ii)The second ground was defects alleged to exist in the bankruptcy notice or in the procedures that led to its issue.
iii)The third ground was the assertion that notwithstanding the judgment of the County Court there was in fact no debt owing.
All of these matters were considered at length in the Reasons for Judgment of Gray J.
As only the third of those grounds forms the basis of the opposition by the debtor before me I will refer only to His Honour's findings in respect of that ground. The third ground was that notwithstanding the Judgment of the County Court there was in fact no debt owing.
His Honour detailed the history of the County Court proceedings in his Judgment. In particular, at paragraph 11 His Honour noted:
"The applicant applied to the County Court to set aside the judgment. He failed, apparently on the ground that he could not show the County Court judge that he had an arguable defence on the merits. The applicant sought leave of the Court of Appeal to appeal from that interlocutory judgment. His application was finally heard by the Court of Appeal on 12 April 2002. In its reasons for judgment the Court of Appeal noted that it spent considerably longer dealing with the matter than it would ordinarily spend on an application for leave to appeal in such a case ... the Court of Appeal considered a quantity of material filed by the applicant which had not been before the County Court judge.
On 15 April 2002 the Court of Appeal dismissed the application for leave to appeal. Its reasons for judgment are found in Joosse v Deputy Commissioner of Taxation (2002) VSCA 48."
At the conclusion of his Judgment at (19) Batt JA said:
"In the light of the foregoing reasons I consider that Mr Joosse has no possible defence. His Honour's decision dismissing the application to set aside the default judgment is not attended with sufficient doubt to warrant the granting of leave to appeal and the taking up of the attention of a court of three. Indeed in my opinion, it is not attended by any doubt at all as to its correctness."
The other member of the Court of Appeal on that occasion Buchanan JA agreed. His Honour said at [22]:
"For the reasons stated by Batt JA, there is no doubt attending the decision of the County Court judge his Honour was plainly correct in deciding that there was no arguable defence to the respondent's claim."
Gray J opined then that the judgment of the County Court was not therefore to be regarded as just an ordinary default judgment and said at page 5, paragraph 15:
"The test for setting aside a default judgment is a relatively easy one to satisfy. As it was stated by Batt JA in the Court of Appeal's reasons for judgment at [4], there required only an arguable defence, not one that is bound to succeed. If the applicant has failed to meet such a test, ie, to fail to show that he has an arguable defence, by the Court of Appeal, as well as by a County Court judge, it cannot be said that the circumstances in which the default judgment was entered were themselves sufficient to amount to a substantial reason for going behind it."
His Honour nevertheless considered, as he was bound to do, the ground that there was in truth no debt. What was argued before His Honour was described at page 5, paragraph 15:
"There were two main aspects of this ground. The first was, as the applicant said, there could not have been a debt because Bellhop Pty Ltd had no employees in the relevant period ... the second main aspect of this ground was unrelated to the first. The applicant argued there could not have been any penalty imposed on him because a period of 14 days' notice was required before such a penalty came into existence and it was necessary for that 14 days to elapse without the company being wound up. The applicant asserted that Bellhop Pty Ltd wound up within 14 days of the actual service of the notice on him. To resolve these issues it is necessary to look at the provisions of the tax act relating to penalties of the kind claimed in the County Court. The relevant provision can be found in Division 8 and Division 9 of Part VI of that Act."
Gray J then went on to consider the relevant provisions and the arguments that were put forward on behalf of the debtor. He considered those arguments in detail. Having done so, at page 13, paragraph 41, His Honour said:
"The combination of facts in the evidence before me suggests that the applicant would have no chance at all of succeeding in relation to a defence that Bellhop Pty Ltd had no employees in the relevant period and for that reason the penalties could not have been imposed."
His Honour also dealt in detail with the other arguments which were raised before him but which do not appear to have been re-agitated before me. His Honour finally concluded at page 16, paragraph 49:
"Like the Court of Appeal, I am, therefore, of the view that the applicant has failed to set up an arguable case based on the short service of a notice by way of a defence."

The present proceedings

It was contemplated that this matter was to be heard in December. On 2 December 2003 Registrar Wood made orders adjourning the matter to 15 December 2003 to be heard by Connolly FM. The respondent debtor was to file and serve a Notice of Opposition and any Affidavits in opposition by 9 December 2003 and the applicant was required to file and serve any Affidavits by 12 December 2003. The debtor did file an Affidavit annexing a number of Exhibits, as well as a Notice of Opposition. An Affidavit was filed on behalf of the creditor.
As it transpired, the matter was unable to be heard on 15 December 2003 and it was adjourned for relisting and it has come on before me on 16 January 2004.
The creditor was represented by Counsel and the debtor appeared in person. He handed up substantial written submissions and spoke to those submissions. The debtor's Affidavit of 9 December 2003 contains complaints about the substance and process by which he has consistently failed in his applications in various Courts. These include allegations of perverting the course of justice, abuse of process and extortion on the part of the creditor. However, the gravamen of the application is that the debtor claims that the question of whether there is in truth, a debt owing has never been properly determined and it is on the material arguable that the debt is not in truth owing.
It is alleged that there are defects in the process by which each of the decisions I have referred was made which have formed the subject matter of various appeals all determined adversely to the debtor.
The law in relation to going behind a judgment upon which a petition is founded is clear. The court clearly has an obligation to exercise its discretion where it is satisfied there are good reasons or what are referred to as substantial reasons for questioning whether there is in truth and reality a debt owed to the creditor[1].
[1] See Ex parte Longo (1995) 57 FCR 523
The discretion was also recently referred to in the principles enunciated by Finkelstein J in the unreported decision of Harrison v Charambous (1999) FCA 902. In that case His Honour stated the principles as follows:
"As it is accepted that a court does have jurisdiction to go behind a judgment to determine whether there is a debt owed to the petitioner (Wren v Mahony (1972) 126 CLR 212; Corney v Brien (1951) 84 CLR 343) that is to say, in bankruptcy proceedings the existence of a judgment is only prima facie evidence of the debt, it is not conclusive evidence."
His Honour goes on to say, however, that:
"Before a court will exercise its discretion to go behind a judgment debt it must be established that there are substantial reasons for questioning whether there is in truth and reality a debt owed to the creditor."
In Makhoul v Barnes (1995) FCR 572, the Full Court considered an appeal from a single judge of the Federal Court dismissing a creditor's petition on the basis that the court was not satisfied the debtor was truly indebted to the petitioning creditor. At an earlier hearing the respondent had made application to set aside a Bankruptcy Notice issued at the request of the applicant. On appeal the appellant sought that fresh evidence be admitted and that evidence at the original hearing be rejected and the question of issue estoppel was raised by the appellant.
The court noted at page 579 that it was not suggested there could be a res judicata arising out of the dismissal of the application to set aside the bankruptcy notice but there was an issue as to whether findings made created an issue estoppel. The court rejected the submission that an issue of estoppel was created in such a case and at page 582 said as follows:
"However, the court has a discretion whether to make a sequestration order, even where an act of bankruptcy has been committed. If the court determines that the circumstances are such that the court should go behind the judgment debt relied upon in the bankruptcy notice, and having done so it is not satisfied that there has been shown to be real consideration for it, it will in the sense discussed above in the exercise of that discretion dismiss the petition notwithstanding the approved act of bankruptcy. Where the court has already investigated that question on an application to set aside the bankruptcy notice, it would not doubt rarely, if ever, do so again. But this is not because an issue estoppel has been raised; it is because the debt has already been investigated by the court so that it would not be an appropriate case to revisit the matter. Rather, the court would (at least ordinarily) accept the judgment as evidence of the debt.
In other words, because the court at the petition stage does not actually decide as between the parties that no debt existed, but rather only whether the circumstances are such that in the exercise of discretion a sequestration order should not be made, the decision not to set aside the bankruptcy notice does not involve the same issue as arises on the petition so as to found an issue estoppel."
The creditor submits that having regard to the comments made by the Full Court and the decision of Gray J not to set aside the Bankruptcy Notice, that I should not reinvestigate the issue determined by Gray J, namely, whether there was in fact a debt owing.
Notwithstanding the submission made by the creditor, I did allow the debtor to rely on his submissions and his Affidavit. It is clear that the gravamen of his concern is that he has never been able to have a full hearing of the matter in which he believes at least that he would be able to persuade a court that the debt is not in fact owing to the creditor.
The problem the debtor faces, however, is that, as Gray J found, the opportunity to persuade various courts that he has an arguable case has been pursued but rejected by the County Court, the Court of Appeal, the High Court and subsequently Gray J himself. Unless there was something new raised by the debtor in the material filed or some point of law not previously raised, in view of the comments of the Full Court in Makhoul v Barnes and Gray J's comprehensive Reasons for Judgment, I would not revisit the same issues.
The debtor raised matters regarding the winding up of Bellhop Pty Ltd and the effect of sections 490, 491 and 492 of the Corporations Act 1989 (Cth) to argue that the notices upon which the ultimate debt was based were invalid. However, this matter was raised before Gray J and dealt with by him.
Insofar as he raised a point which is not the subject of discussion by Gray J in his Reasons for Judgment, I will consider it. The point, as I understand it, is that section 492 of the Corporations Act provides:
A voluntary winding up commences at the time of the passing of the resolution for voluntary winding up.
The debtor asserts that a resolution was passed on 10 September 1999 (Exhibit 12) and therefore that notices issued after that date, and in particular notices issued on 15 September 1999 for $19,500 and 15 October 1999 for $88,000 and 15 October 1999 for $72,000, were invalid.
However, the applicant submitted that the interpretation of section 492 in the manner contended by the debtor was not correct. Section 491 provides the circumstances in which a company may be wound up voluntarily and provides:
"491(1) Subject to section 490, a company may be wound up voluntarily if the company so resolves by special resolution.
(2) A company shall:
(a) within seven days after the passing of a resolution for voluntary winding up lodge a printed copy of the resolution; and
(b) within 21 days after the passing of the resolution cause notice of the resolution to be published in the Gazette."
Despite the special resolution apparently passed by the members on 10 September 1999 no liquidator was appointed nor were the notices required by section 491 given, and the company was wound up by order of the Supreme Court on 3 November 1999.
In his oral submissions the debtor argued that the notices issued by the creditor which founded the judgment debt were inaccurately relied upon as some of them had been revoked. No evidence to support this submission was presented by the debtor and I pointed out to him that on such an important issue of challenge to the decision, that it was inconceivable that there would not have been some evidence presented by him to the County Court, the Supreme Court or to Gray J had there been any evidence of Notices of Revocation.
In the circumstances there is no evidence to support this contention by the debtor, which I note is made so late in a long history of litigation. Thus, having regard to the decision of Gray J and the matters canvassed by him, and to the further matters raised by the debtor which I have considered, I am not able to find that there are any substantial reasons for questioning whether there is in truth and reality a debt owed to the creditor.
The second issue raised by the debtor is the question of the exercise of the court's discretion to adjourn the hearing of the petition until the hearing and determination of the Full Court of Appeal from the decision of Gray J. I am not prepared to exercise my discretion to adjourn the matter. I take into account the following matters:
b)from the matters argued before me which included one of the three grounds argued before Gray J, the appeal is unlikely to be successful as nothing has been put which would suggest that Gray J in any obvious sense erred in his consideration of the matter; and
c)that the debtor has had numerous opportunities to challenge the default judgment, both in the County Court, the Court of Appeal and the High Court, and that all of those avenues have been exhausted, and, as Gray J pointed out, in some instances exhausted after an extensive consideration.
Thus, I am not satisfied that there are matters raised in the appeal which take the matter any further for the debtor towards establishing that there are substantial reasons for questioning whether there is in reality a debt. The appeal from the decision of Gray J is the last in a long line of appeals by the debtor, none of which have been successful. I see no basis upon which my discretion to adjourn the proceedings should be exercised in favour of the debtor.

I am satisfied, therefore, that there is a proper basis to found the creditor's petition. I am also satisfied as to all the formal requirements which are the subject of proof by the creditor pursuant to section 52 of the Bankruptcy Act 1966 (Cth) and will make a sequestration order.

I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Bryant CFM

Associate: Peter Smith

Date: 21 January 2004