D.C.T. v Todisco
[2005] FMCA 543
•29 April 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| D.C.T. v TODISCO | [2005] FMCA 543 |
| BANKRUPTCY – Application for review of creditor’s petition – review of sequestration order – absence of a valid bankruptcy notice – sequestration order set aside – creditor’s petition dismissed. |
| Supreme Court (General Civil Procedure) Rules 1996 Bankruptcy Act 1966 (Cth) |
| Blakey v Latham (1889) 43 CHD 23 Lake and Worley Pty Limited v Blackford [2004] FCA 208 James v Federal Commissioner of Taxation (1955) 93 CLR 631 Re Irene Aekerle; Ex parte Cinco Holdings Pty Ltd [1996] 933 FCA 1 |
Applicant creditor: | DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA |
| Respondent debtor and applicant in the application for review: | FRANK TODISCO |
| Others: | TRUSTEES IN BANKRUPTCY |
| File Number: | (P)MLG 1542 of 2004 |
| Judgment of: | Hartnett FM |
| Hearing date: | 18 April 2005 |
| Date of Last Submission: | 22 April 2005 |
| Delivered at: | Melbourne |
| Delivered on: | 29 April 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr Maiden |
| Solicitors for the Applicant: | ATO Legal Services Branch |
| Counsel for the Respondent: | Mr Randall |
| Solicitors for the Respondent: | McCluskys Lawyers |
| Counsel for the Others: | Amy Penson |
| Solicitors for the Others: | Frenkel Partners |
ORDER
The sequestration order of 29 March 2005 is set aside.
The creditor’s petition is dismissed.
The actions of the trustee following the sequestration order are taken to have been made properly and in good faith, in accordance with the Bankruptcy Act 1966 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
(P)MLG 1542 of 2004
| DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA |
Applicant
And
| FRANK TODISCO |
Respondent
REASONS FOR JUDGMENT
Preliminary
The proceedings are an application for review filed by Mr Todisco on
8 April 2005. The order sought to be reviewed is that of Registrar Mussett made 29 March 2005 which was that there be:
(1)A Sequestration Order against the estate of Frank Todisco
and
(2)The applicant creditor’s costs of and incidental to the petition including reserved costs be taxed pursuant to Order 62 of the Federal Court Rules and paid in accordance with the statute.
The date of the act of bankruptcy was noted to be 17 August 2004.
Mr Todisco did not appear on 29 March 2005. The proceeding was undefended. On the hearing of the application for review the matter proceeds as a hearing de novo.
On 26 November 2004 the applicant creditor filed a Creditor’s Petition claiming an act of bankruptcy to have been committed by the respondent debtor, Mr Todisco, in Mr Todisco’s failure in essence on or before 17 August 2004 to comply with the requirements of a Bankruptcy Notice personally served on him on 27 July 2004. The Bankruptcy Notice was founded on an alleged final judgment obtained in the Supreme Court of the State of Victoria at Melbourne in the sum alleged of $1,388, 947.36 on 26 March 2004. Affidavits verifying paragraphs 1, 2, 3, and then 4 of the Petition were filed on 26 November 2004. Affidavits of service and consent to act as Trustee together with a copy of the Bankruptcy Notice and judgments relied upon were also filed by the applicant creditor.
The respondent debtor (and applicant in the application for review) relied upon an affidavit sworn and filed by him on 8 April 2005 together with further written submissions filed by his Counsel pursuant to a direction made by me for the parties to address the effect of order 6 of the orders made by the Honourable Justice Balmford on 26 March 2004.
History
Mr Todisco was a defendant in proceeding number 6665 of 2003 in the Supreme Court of Victoria wherein the Deputy Commissioner of Taxation of the Commonwealth of Australia (the Deputy Commissioner) was the plaintiff. On 26 February 2004 Master Wheeler ordered the defendant to pay to the plaintiff the sum of $1,409,651.32 together with costs of the proceeding fixed at $2,385.
Mr Todisco appealed the order made by Master Wheeler and on
26 March 2004 the Honourable Justice Balmford dismissed his appeal. The General Form of Order was in the following terms:
THE JUDGMENT OF THE COURT IS THAT:
(1)The appeal is dismissed.
THE COURT ORDERS THAT:
(2)The Defendant pay the Plaintiff the amount shown as owing on the certificates exhibited as TV6 and TV8 to the affidavit of Thu Vien sworn 18 December 2003.
(3)Pursuant to Rule 22.10 of the Supreme Court (General Civil Procedure) Rules 1996 the amount of the general interest charge owing by the Defendant for the period since the making of those certificates be ascertained by agreement of the parties or in default of agreement be assessed by a Master.
(4)The Plaintiff has leave to enter judgment for the total amount owing by the Defendant to the Plaintiff once ascertained.
(5)The Defendant pay the Plaintiff’s costs.
(6)There is a stay of this judgment for a period of 30 days.
I note the certificates exhibited as TV6 and TV8 to the affidavit of Thu Vien sworn 18 December 2003 and referred to in order (2) of the orders of Justice Balmford were not served with the Bankruptcy Notice.
The Deputy Commissioner claims this day that no further general interest charge owing by the Defendant (and as not contained in the certificates) shall be pursued by it. It is conceded that Mr Todisco has not, in written communication, been advised of this determination and that possibly likewise he has not been orally advised of this determination. It is also agreed between the parties that the Deputy Commissioner has not acted pursuant to order no 4 of the orders made on 26 March 2004 and has not entered judgment for the total amount inclusive of the further general interest charge referred to in order 3 therein or at all. Neither Counsel addressed the inclusion of order no. 6 of those orders which could arguably affect calculation of interest for the purposes of the Bankruptcy Notice and thus this was a matter I required be considered in the formulation of the written submissions referred to in paragraph 3 herein.
Mr Todisco claims the Bankruptcy Notice issued at the request of the Deputy Commissioner only annexed the order made by Master Wheeler. Mr Todisco further claims that he had been told by Mr Zafiriou (Solicitor for the Deputy Commisioner) that no action would be taken on the creditor’s petition. I do not accept this evidence. I accept on the balance of probabilities the evidence as contained in the affidavit of Ms Rebecca Hanna sworn 16 April 2005 to which is annexed a copy of correspondence forwarded to Mr Todisco and dated 21 February 2005 advising him that the Deputy Commissioner intended to proceed to seek a sequestration order against his estate if the full amount of his tax liabilities together with interest and costs were not paid by close of business on 28 March 2005. I accept likewise the evidence of Mr Anis Zafiriou sworn 18 April 2005 that negotiations occurred between he and Mr Todisco prior to 22 February 2005 but that after that date they ceased.
I accept that the Bankruptcy Notice issued is as contained in the annexure “YON” to the affidavit of Yasmin Neenan sworn 18 April 2005 and as contained in exhibit “AZ-2” to the affidavit of Mr Zafiriou and as exhibited to the affidavit of Indra Soysa sworn 26 November 2004 and marked with the letters “IS”, namely that it has attached to it a copy of both the order made by the Honourable Justice Balmford of 26 March 2004 and Master Wheeler of 26 February 2004. In that regard I do not accept the evidence of Mr Todisco. Mr Todisco does not depose as to the annexures to the Bankruptcy Notice with which he was served and he does not produce to the Court by way of annexure to his affidavit or at all such Bankruptcy Notice and annexures served upon him. The creditor’s petition refers to a single judgment obtained on 26 March 2004 and as founding the issue of the Bankruptcy Notice. Paragraph 2 of the affidavit of Indra Soysa sworn 26 November 2004 deposes to service of the Bankruptcy Notice upon Mr Todisco as deposed to by the process serve Mr Graeme Henderson wherein in his affidavit sworn 29 July 2004 Mr Henderson refers to the Bankruptcy Notice to which is attached a true copy of the final order. Mr Henderson’s affidavit gives that judgment date as 1 March 2004 (clearly incorrectly) but refers to service of only one judgment whilst annexing both the relevant judgments to his affidavit. I conclude that at the least, the judgment of The Honourable Justice Balmford was served but that it is possible, as urged upon the Court by the Deputy Commissioner that in addition Master Wheeler’s earlier order was also served upon Mr Todisco. Mr Todisco’s evidence as to Master Wheeler’s order being annexed to the issued notice further establishes its likely annexure. On the balance of probabilities I find that both orders were annexed.
The Bankruptcy Notice also provided a calculation of interest and it is clear that interest was calculated from the day following the judgment of Justice Balmford namely from 27 March 2004 and at 11.25%.
Requisite affidavits of search and liability have been filed by the Deputy Commissioner.
The question for the Court is whether the Bankruptcy Notice upon which the creditor’s petition depends is flawed. That Bankruptcy Notice:
a)has annexed to it 2 orders – but not certificates exhibited as TV6 and TV8;
b)has a calculation of interest from 27 March 2004;
c)relates to an order where the plaintiff has not exercised its leave to enter judgment for a total amount owing because the plaintiff has declined to put into effect the procedure provided for in order 3 and pursuant to Rule 22.10 of the Supreme Court (General Civil Procedure) Rules 1996 seeking instead to claim the sum owing pursuant to order no. 2 of the orders made 26 March 2004 and claiming the requirement to pay that sum as a final order which became operative on that date.
Consideration
Rule 22.10 of the Supreme Court (General Civil Procedure) Rules 1996 is as follows:
22.10 Judgment where debt amount unascertained
Where on an application under this Order for judgment on a claim for a debt the amount of the debt is not established to the satisfaction of the Court, and where if the amount were established the Court would give judgment on the claim, the Court may make a declaration as to liability for the debt and order that its amount be ascertained in such manner as the Court directs, and give leave to enter judgment for the debt once the amount is ascertained.
It is clear on the face of the order of 26 March 2004 that Mr Todisco is liable for a debt to the Deputy Commissioner. What is not clear is the correct amount of that debt. However, order no. 3 sets out a mechanism for the quantification of the debt whereupon there is given leave to the plaintiff, in accordance with Rule 22.10, to enter judgment for the debt once the amount as calculated with reference to all the orders and certificates referred to is ascertained.
The terms of the order made 26 March 2004 are consistent with the application of Rule 22.10. The orders made 26 March 2004 must then be interlocutory in nature. In the dismissal of the appeal and leave to enter judgment subsequent to further quantification of debt being made, a declaration of the rights of the parties as against each other is made. However the orders do not deal with the final rights of the parties but direct how the parties are to proceed in order to obtain that final order – and so are interlocutory (Blakey v Latham (1889) 43 CHD 23 at 25). The Bankruptcy Notice must be founded upon a final judgment or order as that expression is used in section 40(1)(g) or section 41 of the Bankruptcy Act 1966 (Cth) (the Act). To the present time, the Deputy Commissioner has not entered judgment pursuant to the order for leave to enter judgment and thus, in my view, has not a final judgment or decree upon which to found execution in the issue of a Bankruptcy Notice. I accept the submission of Counsel for Mr Todisco that if the Deputy Commissioner wished to elect not to claim the general interest charge (as is now said to be the case) that approach must be finalised and the Deputy Commissioner is still required to enter judgment for the amount calculated by reference to the certificates referred to in order no. 2 of the orders of 26 March 2004. The absence of this step being taken is fatal to the Deputy Commissioner’s case. The applicant argues that a Bankruptcy Notice can be founded on either a `judgment’ or `order’ which is final and that the order which it seeks to rely on is order no. 2 of the orders made 26 March 2004 albeit that such order is only one of a number of orders which comprise the single judgment. The difficulty is that the debtor is still left with uncertainty as to the amount owed by him because of the other operative orders in the totality of the judgment. Payment pursuant to order no. 2 solely will not necessarily finally dispose of the debt found to be owed by the debtor to the applicant pursuant to the judgment because of the inclusion of orders no. 3, 4 and 6.
Even if this were not so, the Bankruptcy Notice cannot be relied upon. The Court accepts that the orders of Master Wheeler and Justice Balmford were annexed to the Bankruptcy Notice as urged upon it by the Deputy Commissioner. By clause 2 of the Bankruptcy Notice, each of the judgments or orders attached are relied upon by the Deputy Commissioner. The attachment of each order where only the order made by Master Wheeler includes a dollar amount which is inconsistent with the amount claimed in the body of the Bankruptcy Notice I find could reasonably confuse and mislead the debtor and invalidates the Bankruptcy Notice (Lake and Worley Pty Limited v Blackford [2004] FCA 208). I do not have to enquire whether (Mr Todisco) was in fact mislead (James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644). The Bankruptcy Notice is accordingly incapable of being validated by the provisions of section 306(1) of the Bankruptcy Act 1966 (Cth) (the Act).
Stay
The judgment of Balmford J provided for “a stay of this judgment for a period of 30 days”. This appears to be not an order that stays the payment of a judgment debt during which period statutory interest may accrue. It was clearly envisaged by the orders that judgment would be entered for a sum certain. Enforcement of any order or judgment would then have become available to the applicant creditor when judgment had been entered and after a 30 day period.
I accept the submission of Counsel for Mr Todisco that no notice pursuant to section 41(5) of the Act was required as the Bankruptcy Notice contained not merely an overstatement of the amount payable. Rather, there was not an incorrect calculation of the interest alone but also a claim for payment of interest during a period in which it was not payable. As such the Notice contained a defect which could reasonably mislead the debtor (Re Irene Aekerle; Ex parte Cinco Holdings Pty Ltd [1996] 933 FCA 1 per Finn J).
In the absence of a valid Bankruptcy Notice there is no act of bankruptcy to support the creditor’s petition. Accordingly the creditor’s petition must be dismissed and the sequestration order must be set aside.
Whether a costs order should flow however is a matter in relation to which I shall hear argument together with the question of the Trustee’s costs to date. The review application has been necessitated by the applicant debtor’s own tardy conduct in part in his failure to oppose the making of the sequestration order before Registrar Mussett.
I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Hartnett FM
Associate: Sophie Killen
Date: 29 April 2005
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