D.C.T. Willis
[2007] FMCA 579
•23 April 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DEPUTY COMMISSIONER OF TAXATION v WILLIS | [2007] FMCA 579 |
| BANKRUPTCY – Creditor’s petition – founded on taxation debt – dispute as to whether notices of assessment were served or required to be served on debtor. BANKRUPTCY – Application to set aside bankruptcy notice – out of time. |
| Bankruptcy Act; s 52 Taxation Administration Act 1953; Schedule 1, ss.105-20, 250-1, 255-5, 255-45, Part 4-5 Income Tax Assessment Act1936; ss.173, 174, 177 Acts Interpretation Act 1901; ss 28A, 29 Evidence Act 1995, ss.147, 160, 182 Federal Magistrates Court Rules; Rule 17.03 Taxation Administration Regulations; Regulation 12F |
| Re Duckworth; ex parte Lockett, French J, 12 February 1987; Re Shaddock; ex parte Commonwealth Bank of Australia, Goldberg J, 9 April, 1998; Brookfield v Yevad Products Pty Ltd (2002) 192 ALR 111; Guss v Johnstone (2000) 171 ALR 598 Clyne v DCT (1983) 57 ALJR 673; Re Trevaskis (1993) 27 ATR 102 James v Deputy Commissioner of Taxation (1957) 97 CLR 23 DCT (NSW) v Taylor (1983) 14 ATR 567 Briggs v DCT (WA) (1986) 17 ATR 1140; Sunrise Auto Ltd v DCT (1994) 28 ATR 496 Prestige Motors v FCT (1994) 181 CLR 1 Re Beavis Bros Construction Pty Ltd (in liq) (1987) 10 NSWLR 1 Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | KENNETH LINDSAY WILLIS |
| File number: | BRG670 of 2006 |
| Judgment of: | Wilson FM |
| Hearing date: | 16 March 2007 |
| Date of last submission: | 16 March 2007 |
| Delivered at: | Brisbane |
| Delivered on: | 23 April 2007 |
REPRESENTATION
| Counsel for the Applicant: | N/A |
| Solicitors for the Applicant: | Australian Government Solicitor |
| Counsel for the Respondent: | N/A |
| The Respondent: | Mr Willis in person |
ORDERS
The respondent’s application to set aside the bankruptcy notice be dismissed.
The separate question be answered as follows:
The respondent was required to be served with notices of amended assessment issued by the applicant on 16 March 2006, and was so served.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG670 of 2006
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| KENNETH LINDSAY WILLIS |
Respondent
REASONS FOR JUDGMENT
This application highlights the dangers of a slavish adherence to precedent, and the reliance upon statutory presumptions. On 2 March 2007 I ordered that the issue of whether the respondent was served or required to be served with notices of amended assessment be determined as a separate question pursuant to Rule 17.03 Federal Magistrates Rules, and that such question be heard contemporaneously with the respondent’s application to set aside the bankruptcy notice admittedly served upon him.
On 19 September 2006 the applicant creditor presented a creditor’s petition seeking a sequestration order against the estate of the respondent. That creditor’s petition was founded upon an act of bankruptcy committed by the respondent in failing to comply with a bankruptcy notice served upon him on 2 August 2006. That bankruptcy notice was, in turn, based upon a default judgment of the District Court of Queensland entered on 19 June 2006, in the amount of $228,954.56.
District Court proceedings were commenced by the applicant creditor against the respondent debtor on 26 April 2006. Although not put into evidence, it seems that the District Court proceedings were brought in consequence of the non-payment by the respondent debtor of amounts said to be owing to the applicant creditor pursuant to notices of amended assessment issued on 16 March 2006, and on 21 March 2006.
No application was filed by the respondent debtor seeking to set aside the bankruptcy notice until 1 March 2007. No application has yet been made to set aside the default judgment of the District Court.
Although the matters of which proof is required on the hearing of an application for a sequestration order are set out in s.52(1) Bankruptcy Act, the Court retains a discretion under s.52(2)(b) of the Act not to make a sequestration order, if so persuaded by a debtor. In this case, the respondent debtor argues that he never received the notices of amended assessment, and therefore was deprived of the opportunity to challenge them by way of the objection process, or otherwise. The debtor asserts that the notices of amended assessment are in error in numerous respects, and so as to enable him to challenge the correctness of the amended assessments, a sequestration order ought not be made.
It seemed to me implicit in these contentions on the part of the debtor that there was a legal requirement on the part of the applicant creditor to effect personal service of the notices of amended assessment on the respondent. If there was no such requirement, this aspect of the debtor’s argument could be easily disposed of. If there was such a requirement for service, the next question would be whether in fact such service was properly effected.
As this seemed a threshold dispute between the parties, I made the order for the determination of a separate question. Unfortunately, until the date of actual hearing, the applicant’s affidavits were deficient in a number of respects, that I will hereinafter identify. It seems that reliance was placed on standard precedents that unfortunately did not address the relevant evidence.
The debtor’s application to set aside the bankruptcy notice can be shortly disposed of.
There is no contest by the debtor that he was properly served with the bankruptcy notice on 2 August 2006. He has plainly failed to apply within the time allowed by s.41(6A) of the Act for either an extension of time within which to comply with the bankruptcy notice, or to set it aside. No complaint is made as to the content of the bankruptcy notice, and it is not sought to be impugned on its face. The applicant creditor submits that, in those circumstances, the court lacks jurisdiction to set aside the bankruptcy notice, even under s.30 of the Act.
There is much judicial support for the applicant’s submission: Re Duckworth; ex parte Lockett, French J, 12 February 1987; Re Shaddock; ex parte Commonwealth Bank of Australia, Goldberg J, 9 April, 1998; Brookfield v Yevad Products Pty Ltd (2002) 192 ALR 111; Guss v Johnstone (2000) 171 ALR 598 at [58]. It should be accepted. In any event, even if there remained a discretion to entertain the application, that discretion would not be exercised in favour of the debtor in circumstances where he has allowed such a period of time to expire after service of the bankruptcy notice, and the commission of the act of bankruptcy, and has not offered any explanation other than insolvency for that delay.
Further, there is authority that the court should not go behind assessments in bankruptcy proceedings, because of the conclusive nature of the notices of assessment given by s. 177 Income Tax Assessment Act 1936: Clyne v DCT (1983) 57 ALJR 673 at 674; Re Trevaskis (1993) 27 ATR 102.
The respondent debtor’s application to set aside the bankruptcy notice must therefore be dismissed.
The respondent debtor’s principal complaint is that he wished to challenge the amended assessments raised by the applicant creditor, but had not been afforded the opportunity to do so, because he had not been served with them. This was a matter raised by the respondent in his first affidavit, where at paragraph 5 he said:
“In or around late March 2006 I sought the advice of BDO Kendalls, Accountants, as regards a report by an auditor from the Applicant. An accountant named Andrew advised me that I should wait until I received a Notice of Amended Assessment in order to appeal the amount assessed. As this Notice was never received, I believe that I have not been afforded the opportunity to appeal the amount prior to legal proceedings being instituted against me. Once legal proceedings were started, I was unable to obtain the necessary legal advice to assist me in the defence of my claim.”
In response to this contention of the debtor, the applicant creditor filed, and relied upon, an affidavit of Leo Wilkinson of 15 December 2006. Mr Wilkinson subsequently gave oral evidence before me, to which I will shortly refer. In this affidavit Mr Wilkinson deposed to the following:
(a) that on 16 March 2006 notices of amended assessment were sent by ordinary prepaid post to the respondent’s address of
3 Baden Powell Place, Camp Hill;
(b) from inspecting the records of the applicant, the applicant had not received notice that the documents were returned by Australia Post as being undeliverable; and
(c) that on 11 December 2006 a certificate was signed by a Deputy Commissioner of Taxation pursuant to s. 255-45 of Schedule 1 to the Taxation Administration Act 1953, inter alia, that:
a. the assessments were served on the respondent
b. the amount was still owing.
In this affidavit, which appears to be a pro forma document,
Mr Wilkinson does not depose to any factual basis for the assertions in sub-paras.(a) and (b) above. It was not said that these were matters within his personal knowledge, and as his evidence subsequently revealed, were not. Further, the certificate relied upon by
Mr Wilkinson did not certify in the terms he alleged. Rather, it relevantly provided:
“(c) These assessments were made on 16 March 2006 and were taken to be served on the Defendant as Willis T/A James Home Service at 3 Baden Powell Pl Camp Hill QLD 4152”
The certificate relied upon is prima facie evidence of the matters stated “in a proceeding to recover an amount of a tax related liability.” In my view, there is a real question as to whether an application for a sequestration order against the estate of a taxpayer who has been adjudged liable to pay a tax related liability is a proceeding to recover that liability.
Section 250-1 of the Schedule to the Taxation Administration Act1953 provides that Part 4-5 of the Schedule deals with the methods by which the Commissioner may collect and recover amounts of taxes and other liabilities. Proving in bankruptcy is not one of the methods provided for. Section 255-5(2) permits the Commissioner or a Deputy Commissioner to sue in a court of competent jurisdiction to recover an amount of a tax related liability that remains unpaid after it has become due and payable. In this case, that occurred when the applicant sued in the District Court and obtained judgment. There is nothing in Part 4-5 of the Schedule which provides that applying for a sequestration order against a person who owes a tax related liability is a proceeding to recover the amount of that liability. Neither does it accord with the concept of bankruptcy that it is a proceeding to recover a debt. Rather it is a process by which the assets of the bankrupt are collected and distributed amongst his or her creditors. A result of that process may be the payment of a dividend to a creditor that satisfies the debt in whole or in part. However, in my view, applying for a sequestration order so as to initiate the administration of the debtor’s estate in bankruptcy is not a proceeding to recover an amount of a tax related liability.
I note that in James v Deputy Commissioner of Taxation (1957) 97 CLR 23 at 35 three justices of the High Court in obiter remarks considered that “the commissioner is empowered to take proceedings in bankruptcy for the recovery of tax as a Crown debt”. However, these statements were made without the benefit of considered argument, and in my view do not accurately reflect the nature of an application for a sequestration order, nor the process of bankruptcy generally.
In those circumstances, the certificate relied upon by the applicant is of no assistance to it. It does not constitute prima facie evidence of the matters contained in it. The certificate is deficient in another respect. As I understand it amended assessments were alleged to have been posted on 16 March, and a further document raising penalties was allegedly posted on 21 March. The certificate makes no reference to the latter document, which was not put into evidence.
In Halsbury’s Laws of Australia at [405-31060] it is stated:
“After making an assessment, the Commissioner of Taxation is required to serve notice of the assessment by post or otherwise, on the person liable for the tax (referring to Income Tax Assessment Act 1936 s 174(1)). Issuing the notice completes the process of assessment, and tax is not payable until the notice has been served (referring to Gordon Edgell & Sons Pty Ltd v FCT (1949) 9 ATD 43; White Industries Australia Ltd v FCT (2003) 129 FCR 276).
. . .
A posted assessment is deemed to have been served at the time it would be expected to arrive at the address for service in the normal course of post. Where a person alleges that he or she has not received a notice of assessment, the onus lies on that person to prove such allegation ((referring to DCT v Allanson (1994) 28 ATR 452; Van Reesma v Mills (1981) 12 ATR 263”
Section 174(1) Income Tax Assessment Act1936 provides:
“As soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof in writing by post or otherwise upon the person liable to pay the tax.”
The applicant creditor in its submissions referred to s.105-20 in Schedule 1 to the Taxation Administration Act which is in similar terms. An amended assessment is an assessment for all purposes of the Act: s.173.
In White Industries at 282 Emmett J said:
“The scheme of the Act and the Administration Act draws a distinction between the process of assessment, on the one hand, and the giving of notice of assessment on the other. However, the process of assessment is only completed when the Commissioner, having inserted in a notice of assessment the amount of the taxable income and the amount of tax payable thereon, serves the notice on a taxpayer. Service of the notice of assessment on a taxpayer fixes the ascertainment of the amount of the taxable income and the amount of the tax payable by the taxpayer. That service brings to an end the process of assessment. If the Commissioner, having gone through the process of calculation, serves on a taxpayer a notice that he has assessed the taxable income and the tax at specified amounts, the tax becomes, by force of the Act, due and payable on the date specified in the notice: Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 at 14.
. . .
Thus, while the giving of notice of assessment brings about the completion of the process of assessment, the function of the notice is to bring to the attention of the taxpayer the fact of the liability that arises upon the giving of the notice. There is no liability until the notice is given but, once given, there is nothing further to be done in order to complete the process of assessment that gives rise to a liability to pay tax on the part of the relevant taxpayer”
It was accepted by the applicant creditor that the notices of assessment relied upon in the recovery proceedings had to be served on the respondent debtor. It is beside the point that the assessments were otherwise valid – until served they could not be sued upon.
Therefore, in order to be entitled to sue on the notices of amended assessment, the applicant creditor had to prove that they were served on the respondent debtor. In the present case, the respondent debtor has given sworn evidence that the notices of amended assessment were not received by him. The applicant says that a distinction must be drawn between service and receipt, and the former does not require the latter.
In DCT (NSW) v Taylor (1983) 14 ATR 567 Lee J rejected an argument that service had to be personal service. In Australian Tax Practice, Volume 9 at [174/1] reference is made to Briggs v DCT (WA) (1986) 17 ATR 1140, and to Sunrise Auto Ltd v DCT (1994) 28 ATR 496 at 502 to support the statement that the object of service is receipt by the taxpayer. Further, the learned authors refer to Prestige Motors v FCT (1994) 181 CLR 1 as supporting the proposition that the notice of assessment must be brought to the notice of the person liable to pay the tax. Further in Re Beavis Bros Construction Pty Ltd (in liq) (1987) 10 NSWLR 1 Bryson J held that there was no notice of assessment unless a process of service referred to in s.174(1) had been carried out in relation to it. His Honour held that a document is not a notice of assessment within the meaning of s.177(1) of the Act until it has been brought to the notice or knowledge of somebody or until it has been served on somebody.
In that regard the applicant relied on Regulation 12F of the Taxation Administration Regulations which permits the service of a document on a person by:
(a) If the person has given a preferred address for service that is a physical address – leaving a copy of the document at that address; or
(b) If the person has given a preferred address for service that is a postal address – posting a copy of the document to that address.
The applicant then calls in aid ss.28A and 29 Acts Interpretation Act1901 which deem service to be properly effected by properly addressing, prepaying and posting the document as a letter, and unless the contrary is proved such service is taken to have been effected at the time at which the letter would be delivered in the ordinary course of post. Further, s.160(1) Evidence Act 1995 provides that it is to be presumed (unless evidence sufficient to raise doubt about the presumption is adduced) that a postal article sent by prepaid post addressed to a person at a specified address in Australia . . . was received at that address on the fourth working day after having been posted.
Initially, the applicant creditor conceded that there was no evidence that the respondent had given a preferred address for service, so as to enliven Regulation 12F referred to above (T35.15). However, I am satisfied from the evidence of Mr Wilkinson (at T43) that the appearance of the address on exhibit LEW1 to his affidavit filed
8 March 2007 can only be explained on the basis that it was an address given by the respondent as his address for the service of documents by the applicant. The respondent gave evidence that the address had been his residential address since August 2001. Therefore, Regulation 12F permitted service of the notices of amended assessment by either leaving a copy of the documents at that address or by posting a copy to that address.
Is there evidence that the notices of assessment dated 16 March 2006 were posted by the applicant? There is no need for there to be evidence regarding the notice of assessment dated 21 March because the respondent in his evidence conceded that he received it (T31.35).
This enquiry highlights the danger of the applicant relying on the certificate purportedly issued under s.255-45 of the Schedule to the Taxation Administration Act.
In my view the oral evidence of Mr Wilkinson properly described the process by which the notices of amended assessment would have been posted by the applicant. The notices would have been generated by the applicant’s computer system in the Sydney processing area. Although Mr Wilkinson had not been to that particular place he gave evidence, which I accept, that the same process was still used as previously operated at decentralized offices including Chermside, where Mr Wilkinson had worked and observed the process. When a bulk run of notices is printed a bar code reader sends a signal to a computer program called the receivables BASMIN system. Then an entry is made in the applicant’s Automatic Document Despatch program. An entry can only be made in that program if the notice is printed and collated in to an envelope for posting. There was an entry in the ADD program in this case showing that the notices of amended assessment were processed on 16 March 2006. Mr Wilkinson gave evidence that once folded into envelopes the notices are collected by a representative of Australia Post or by an independent mailing contractor, pursuant to a contract with the applicant. The notices are then sent through the postal system.
In those circumstances, it seems to me that by a combined operation of ss.147, 160 and 182 Evidence Act, the process described by
Mr Wilkinson is presumed to have produced the notices of assessment and put them into the mailing system. They are then presumed to have been received four days later. Mr Wilkinson gave evidence of the system used where articles are returned by the postal service. That did not occur in the present case.
Upon dispatch by post the documents are served in accordance with Regulation 12F. Receipt by the addressee is not required. The position is analogous with that dealt with by the High Court of Australia in Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 95. All that is required to be proved by the applicant is service, not actual receipt by the respondent.
In DCT v Allanson, supra, Brownie J accepted the taxpayer’s evidence that the notice of assessment was not received by him, and concluded (at 455) that the purported service was ineffective. This suggests that receipt by the taxpayer is required. In Van Reesma v Mills, supra, White J (at 264) highlighted the important distinction between an averment of posting and an averment of service, the latter implying receipt. However, that distinction is difficult to reconcile with the plain language of Regulation 12 F and the decision of the High Court in Fancourt.
I am satisfied that the applicant has proved service of the notices of assessment. I should add that if I am wrong in my conclusion that evidence of receipt is not required, I would make a finding adverse to the respondent in that regard. The respondent carries the evidentiary onus of satisfying me that the notices of assessment were not received by him. The respondent gave evidence the documents were not in fact received. However, the audit report and notice of assessment both dated 21 March 2006 were received by him. They were both posted to the same address. The respondent has lived at the address since 2001. He was served there with the District Court proceedings, the bankruptcy notice and the creditor’s petition. Even when proceedings were commenced against him, no doubt relying on the notices of assessment, the respondent did not raise the fact that they had not been received by him. I am not persuaded that for some inexplicable reason the notices of assessment were not received at his address.
The respondent is not able to establish any other reason why a sequestration order should not be made. His attempts at proving solvency were unsuccessful. The petition and bankruptcy notice are regular on their face. In the circumstances, having found that the respondent was required to be served with the notices of amended assessment dated 16 March, 2006, and having found that such documents were in fact served, upon the proof of the matters required by s.52(1)(c) Bankruptcy Act I will make a sequestration order against the estate of the respondent.
The orders I will make are as follows:
a)The respondent’s application to set aside the bankruptcy notice be dismissed
b)The separate question be answered as follows:
The respondent was required to be served with notices of amended assessment issued by the applicant on 16 March 2006, and was so served.
I will hear the parties as to costs.
I certify that the preceding thirty-nine (39) paragraphs are a true copy of the reasons for judgment of Wilson FM
Associate: Lynnette Chin
Date: 20 April 2007
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