Deputy Commissioner of Taxation v Mac
[2015] FCCA 2522
•17 September 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DEPUTY COMMISSIONER OF TAXATION v MAC | [2015] FCCA 2522 |
| Catchwords: BANKRUPTCY – Effect of s.342-10 of sch.1 to the Taxation Administration Act 1953 – whether settlement reached under the Proceeds of Crime Act 2002 included the respondent’s taxation liabilities to the Commonwealth – whether the sequestration order ought not to be made for some “other sufficient cause” within the meaning of sub-s.52(2)(b) of the Bankruptcy Act 1966 – sequestration order made. |
| Legislation: Bankruptcy Act 1966 (Cth), s.52 Evidence Act 1995 (Cth), ss.59, 190(1) |
| Cain v Whyte (1933) 48 CLR 639 Stratton v Bowles (No 2) (2015) 12 ABC(NS) 404 |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | LY TIEN MAC (ALSO KNOWN AS TIEN LY MAC) |
| File Number: | SYG 3582 of 2014 |
| Judgment of: | Judge Smith |
| Hearing dates: | 14 July 2015 |
| Date of Last Submission: | 14 August 2015 |
| Delivered at: | Sydney |
| Delivered on: | 17 September 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr G. O’Mahoney |
| Solicitors for the Applicant: | Australian Taxation Office, Dispute Resolution |
| Counsel for the Respondent: | Ms Y. Guo |
| Solicitors for the Respondent: | Trivo Lawyers |
ORDERS:
A sequestration order be made against the estate of Ly Tien Mac (Also Known As Tien Ly Mac).
The applicant creditor’s costs be fixed in the amount of $11,937.04 and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
THE COURT NOTES THAT:
The date of the act of bankruptcy is 2 July 2014.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3582 of 2014
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| LY TIEN MAC (ALSO KNOWN AS TIEN LY MAC) |
Respondent
REASONS FOR JUDGMENT
(As Corrected)
The respondent, Mr Mac, is currently serving a term of imprisonment imposed as a result of his conviction for a number of serious offences including the supply of commercial quantities of heroin and methylamphetamine. Most of his assets were forfeited as a consequence of his conviction and had previously been the subject of restraining orders made under the Proceeds of Crime Act2002 (Cth) (“POCA”).
The Deputy Commissioner of Taxation (“DCT”) seeks a sequestration order against Mr Mac’s estate. There is no dispute between the parties that the DCT has a prima facie entitlement to such an order. However, Mr Mac opposes the order on the grounds that he understood that a settlement that he reached under the POCA included all of his liabilities to the Commonwealth including his taxation liabilities.
Background
In 2010 the Australia Taxation Office conducted an audit in respect of Mr Mac. On completion of that audit, notices of assessment were issued requiring Mr Mac to pay approximately $1,100,000 in income tax and penalties. Mr Mac objected to those assessments on the basis that the money received by him was attributable to his gambling activities and so was not assessable income. When the objection was disallowed he applied to the Administrative Appeals Tribunal for review of the objection decision. The decision was ultimately upheld by the Tribunal.
On 12 November 2010 Mr Mac was charged with six offences under New South Wales and Commonwealth legislation relating to illicit drug supply and dealing with the proceeds of crime. On 8 August 2011 the Supreme Court of New South Wales made orders under the POCA restraining any dealing with certain aspects of Mr Mac’s property.
On 4 April 2012 Mr Mac was convicted of a number of offences including an attempt to import a marketable quantity of heroin, supply a large commercial quantity of heroin, and supply a large commercial quantity of methylamphetamine. He was subsequently sentenced to 13 years imprisonment with a non-parole period of 9 years in respect of those convictions.
On 1 May 2012 judgment in the amount of $560,245.38 was entered by consent against Mr Mac in favour of the DCT in the District Court of New South Wales.
On 30 May 2012 the Commonwealth Director of Public Prosecutions gave Mr Mac written notice of the prospective forfeiture of the property subject to the restraining order pursuant to s.92 of the POCA. Mr Mac applied to the Court by motion for an order excluding all of the restrained property from any forfeiture order. That application was settled and, on 18 July 2013, orders were made by consent in the Supreme Court of New South Wales excluding certain property from forfeiture under the POCA. The parties to those proceedings were the Commissioner of the Australian Federal Police (who had been substituted for the Commonwealth Director of Public Prosecutions as plaintiff) and Mr Mac.
On 24 July 2013 bankruptcy notice number BN 163524 was issued in respect of the judgment debt owing by Mr Mac to the DCT together with interest in the amount of $40,345.17, being additional debt due and payable as at 2 July 2014 pursuant to the Taxation Administration Act 1953 (Cth). Mr Mac received that notice on 14 October 2013 and has failed to comply with it.
On 30 October 2013 Mr Mac applied to this Court to set aside the bankruptcy notice as an abuse of process. In essence, the application was based upon the proposition that Mr Mac was in some way led to believe that the tax debt supporting the bankruptcy notice would be waived as part of the discussions which ultimately led to the settlement of the POCA proceedings. Judge Driver dismissed that application on 2 July 2014: Mac v Deputy Commissioner of Taxation [2014] FCCA 1426. Mr Mac committed an act of bankruptcy on that day by failing to comply with the notice.
On 22 December 2014 the DCT filed a creditor’s petition relying upon Mr Mac’s failure to comply with the bankruptcy notice or to satisfy the Court that he had a counterclaim, set-off or cross demand equal to or more than the sum claimed in the bankruptcy notice being a counterclaim, set-off or cross demand that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.
The matters stated in the petition are not in dispute and the first four paragraphs therein are supported by the affidavit verifying it.
The creditor’s petition was served on Mr Mac by a licensed commercial agent who left it and a number of documents with a female employee of the Junee Correctional Centre on 20 February 2015. Mr Mac signed for and received those documents on 23 February 2015.
The evidence shows that the debt on which the petitioning creditor relies is still owing.
On 2 April 2015 Mr Mac filed a notice of grounds of opposition to the creditor’s petition relying on sub-s.52(2)(b) of the Bankruptcy Act 1966 (Cth). The bases for his opposition are set out at [18] in the affidavit of Tri Vo affirmed 2 April 2015, as follows:
a.he consented to the POCA settlement orders on the understanding that it included the tax-related liabilities arising pursuant to the 2007 and 2008 assessments because of the effect of s.342-10 Schedule 1 Taxation Administration Act 1953 (Cth);
b.had he known that the terms contained in the POCA settlement orders did not include the tax-related liabilities arising under the 2007 and 2008 assessments he would not have consented to settle the proceedings on the terms as contained in the POCA settlement orders; and
c.if the POCA settlement orders did not include the amount sought in the District Court judgment, [Mr Mac’s solicitors were instructed] to move the Supreme Court to set the POCA settlement orders aside.
Mr Mac concedes that those matters were ventilated unsuccessfully in his application to set aside the bankruptcy notice which was determined by Judge Driver.
In his written submissions Mr Mac formulated the grounds slightly differently. He said that the circumstances culminating in the bankruptcy proceedings involve both an unusual and harsh application and operation of Commonwealth statutes coupled with an apparently mistaken subjective belief on his part as to his liability to one emanation of the Commonwealth (namely the Australian Taxation Office).
The matter came on for hearing before me on 14 July 2015. During the course of the hearing the respondent confirmed that he would not challenge the applicant’s compliance with the formal requirements of the application and that he would only rely on the other sufficient cause to resist the making of a sequestration order. In spite of this, it became apparent during the course of submissions that the respondent may in fact be able to pay the amount of the debt owing to the DCT.
The respondent then applied for, and was granted, leave to amend his notice of opposition to the sequestration order to include a ground relying on sub-s.52(2)(a) of the Bankruptcy Act. The matter was then stood over for further directions on 14 August 2015. On that date, Ms Guo, Counsel for the respondent, informed the Court that the respondent no longer wished to rely upon sub-s.52(2)(a) of the Act. The applicant was given leave to file and serve further written submissions but has not done so.
In those circumstances, and given that I am satisfied of the matters set out in s.52(1) of the Act, the issue for determination is whether the sequestration order ought not to be made for some “other sufficient cause” within the meaning of s.52(2)(b) of the Act.
Consideration
The words “other sufficient cause” are of extraordinary breadth. In Cain v Whyte (1933) 48 CLR 639 the High Court approved the following approach at 646:
… prima facie, on proof of the matters mentioned in sec. 56(2), the Court will proceed to make an order for sequestration, and that it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.
…
Thus, it has been said that a petitioning creditor has a “prima facie right” to a sequestration order once proof of the matters required by s.52(1) has been satisfied: Stratton v Bowles (No 2) (2015) 12 ABC (NS) 404 at 413 [27] per Beach J and the cases cited there. His Honour Beach J went on to say that the circumstances which may constitute “other sufficient cause” are extremely variable, that it is inappropriate to catalogue or circumscribe them and that, even if such cause has been shown, that merely enlivens the Court’s discretion to refuse to make a sequestration order.
The first strand of the respondent’s argument relies on the assertion that Mr Mac only agreed to the consent orders in the POCA proceedings because of his understanding that it extended to his tax-related liabilities because of the effect of s.342-10 of sch.1 to the Taxation Administration Act 1953 (Cth) (“TAA”). The evidence of that understanding was by way of affidavit of Mr Vo, Mr Mac’s solicitor, who said that Mr Mac instructed him that this was the case. The applicant did not object to that evidence and it was admitted in spite of it being clearly hearsay (see Evidence Act 1995 (Cth) ss.59 and 190(1)). However, even though it may be used to prove the truth of Mr Mac’s understanding, I do not accept the facts asserted by the evidence.
Section 342-10(1) of Schedule 1 to the TAA provides:
(1)The Commissioner may waive the Commonwealth's right to payment of all or part of a * tax-related liability if the Commissioner is satisfied that:
(a)the waiver will facilitate the starting, conduct or ending (by settlement or otherwise) of proceedings under the Proceeds of Crime Act 2002 ; and
(b)the liability is connected with circumstances associated with the proceedings.
…
The power under this provision was available to be used in connection with the settlement of the POCA proceedings against Mr Mac. The problem, however, is that there is no evidence at all to suggest that it was even considered at the time by either Mr Mac or by the applicant. There is nothing in evidence before me to suggest, for example, that Mr Mac applied to the DCT for the exercise of the power under s.342-1 or that there was any communication whatsoever between Mr Mac, the DCT or the Commissioner of the Australian Federal Police (as plaintiff in the POCA proceedings) concerning the possible use of the power.
However, even if the use of the power had been considered, or even if Mr Mac had asked that it be considered, there is no evidence to suggest that it was utilised in Mr Mac’s favour.
In short, there is no basis at all for any understanding that the settlement of the POCA proceedings included Mr Mac’s tax liabilities. In light of that, I do not accept that Mr Mac held such an understanding and find that, even if he did give Mr Vo instructions that he did, those instructions were false.
In any event, even if Mr Mac thought that, by consenting to orders under the POCA, he would be released from his tax liabilities, I do not consider that this would amount to a sufficient cause to refuse to make a sequestration order. First, there was no basis for the understanding. In particular, there is nothing to suggest that the applicant did or said anything to encourage Mr Mac to hold the understanding. Second, any understanding was mistaken. There was no waiver under s.342-1 of the TAA. Third, there is no foundation for any claim of abuse of process, estoppel, waiver, or any other basis that might outweigh the interests of the applicant and the Commonwealth in obtaining a sequestration order. All there would be is a vague, uncommunicated and baseless misunderstanding about the effect of consent orders in proceedings that did not even involve the current applicant.
The second strand of the respondent’s argument is that his predicament has been brought about by an unduly harsh operation of Commonwealth law. Ms Guo accepted that, fundamentally, the confiscation of Mr Mac’s property under the POCA was brought about by his conviction for serious drug offences; however, she argued that the combination of the POCA and the tax liability operated as a double punishment. There was a commonality between this argument and the first argument in that Mr Mac’s understanding was relied on as an element of the harshness brought about by the combined effect of the POCA and the tax liability. It was argued that the POCA settlement had led to the situation where Mr Mac was now unable to pay his tax liabilities and so be subject to a sequestration order.
Ms Guo relied on certain parts of a policy document, “ATO 2011/10 Waiver of Tax Related Liabilities in Proceeds of Crime Matters”, in relation to the discretion in s.342-1 of sch.1 to the TAA. That document states that the ATO is part of a multi-agency taskforce created to restrain and confiscate proceeds of crime and that, given the importance of the POCA in the tax context, it was imperative in certain cases that the POCA and tax processes work together effectively and do not come into conflict. The policy noted that difficulties in this field had arisen and that the Commissioner had been given the power in s.342-1 in order to avoid these difficulties. The document goes on to refer to certain matters to be considered in the exercise of the power; however, nothing in the policy document is of any assistance to the respondent. The difficulty, as I have said, is that he simply has not shown any basis for his understanding that the waiver power had been exercised.
Another difficulty in the respondent’s argument is that it relies on the assumption that there is an identity between the applicant’s taxable income and the property that was subject to the forfeiture order under the POCA. That assumption has no basis in the evidence.
First, the primary tax liability was in respect of the 2007 and 2008 tax years whereas the crimes of which the applicant was convicted were committed in 2010. Secondly, the penalty component of the judgment debt was imposed in respect of the shortfall under s.284-75 of sch.1 to the TAA by reason of false or misleading statements by the respondent. That is, although there was a connection between the penalty and the shortfall, it was not brought about by the earning of income.
Conclusion
For those reasons, I am not satisfied that a sequestration order ought not to be made for other sufficient cause within the meaning of sub-s.52(2)(b) of the Bankruptcy Act. As I have said, I am satisfied of the proof of the matters in s.52(1) of the Act. It follows that a sequestration order will be made against the respondent’s estate and there will be an order that the applicant’s costs will be paid from the estate of the respondent in accordance with the Act. There is evidence that the applicant’s costs and disbursements amount to $11,937.04 and I consider that it is appropriate to fix the costs in that amount.
I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for judgment of Judge Smith
Associate:
Date: 17 September 2015
CORRECTION
Cover sheet and Orders: Page 2, Order (2) – replace “1996” with “1966”.
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