Deputy Commissioner of Taxation v Morando

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
TAXATION LIST

S CI 2017 02394

DEPUTY COMMISSIONER OF TAXATION	Plaintiff
v
ROBERTO SERGIO MORANDO	Defendant

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JUDGE:	DERHAM AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	10 May 2018 (further submissions 17 May 2018)
DATE OF JUDGMENT:	26 October 2018
CASE MAY BE CITED AS:	Deputy Commissioner of Taxation v Morando
MEDIUM NEUTRAL CITATION:	[2018] VSC 641

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PRACTICE AND PROCEDURE – Taxation and revenue – Recovery proceedings in State Court – Notices of assessment conclusive evidence of taxation debt – Defendant taxpayer cannot impugn validity of notices in recovery proceedings – Summary judgment – Adjournment or stay of execution pending objection to assessments – Relevant principles and considerations – Deputy Commissioner of Taxation v Mackey (1982) 64 FLR 432; Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119; Southgate Investment Funds Limited v Deputy Commissioner of Taxation (2013) 211 FCR 274; Deputy Commissioner of Taxation v Arico [2017] VSC 746.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms M L Baker	Australian Government Solicitor
For the Defendant	Mr D Diaz	Network Legal & Associates T/As Evans Ellis Lawyers

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

Background......................................................................................................................................... 1

The plaintiff’s claim........................................................................................................................... 3

Income tax and Medicare levy liabilities.................................................................................. 3
Administrative penalties............................................................................................................. 6
Administrative penalties for failure to provide a return........................................................ 6
Administrative penalties for failure to lodge a document..................................................... 8

The defence....................................................................................................................................... 10

Adjournment application............................................................................................................... 13

Defendant’s submissions........................................................................................................... 13
Plaintiff’s submissions............................................................................................................... 15
Consideration.............................................................................................................................. 18

Stay application................................................................................................................................ 19

Defendant’s submissions........................................................................................................... 19
Plaintiff’s submissions............................................................................................................... 22
Supplementary submissions..................................................................................................... 25
Plaintiff................................................................................................................................ 25
Defendant............................................................................................................................ 28
The first question.................................................................................................. 29
The second question............................................................................................ 30

Consideration.............................................................................................................................. 33

Conclusion......................................................................................................................................... 40

HIS HONOUR:

Introduction

The plaintiff applies for summary judgment against the defendant pursuant to s 61 of the Civil Procedure Act 2010 (Vic) (CPA).[1] The plaintiff is seeking to recover a series of tax-related liabilities, including:
[1]By summons filed on 5 March 2018. See also r 22.03 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules).

(a) income tax assessed in notices of assessment issued to the defendant in respect of each of the years of income ended 30 June 2009 to 2014, inclusive (the relevant years);

(b) administrative penalties assessed in the notices of assessment of penalty issued in respect of each of the relevant years;

(c) administrative penalties for failing to lodge an income tax return in respect of each of the relevant years; and

(d) general interest charge (GIC) that has continued to accrue in respect of each of the unpaid tax-related liabilities.

Background

The proceeding was commenced by writ indorsed with a statement of claim filed on 23 June 2017. The defendant filed an appearance and, on 28 August 2017, a defence to the statement of claim. The proceeding was issued in the Taxation List of the Court and came before Croft J for directions in September and October 2017. The plaintiff indicated he wished to make application for summary judgment and directions were made for that application on 6 October 2017. His Honour referred the matter to me for hearing.

The plaintiff then sought to vary the orders previously made so that he could apply under s 130 of the Evidence Act 2008 (Vic) to have, in effect, the name of any deponent of the affidavit in support of the application for summary judgment, and some other matters, redacted on the basis that to reveal their identity would prejudice the proper operation of the Australian Taxation Office (ATO). The prejudice arose from the defendant’s involvement in an outlaw motor cycle gang (OMCG) and the fear that he might be involved in forms of serious and organised crime. The evidence showed that the defendant was the vice-president of the Comancheros: an OMCG.

The evidence also showed that the ATO had undertaken an occupational health and safety risk assessment in relation to the defendant to determine whether it was necessary to take steps to protect the identity of the ATO personnel involved in the audit of his tax affairs. He was given a severe risk rating. That rating resulted from a conclusion that the defendant or his associates in the Comancheros OMCG might become aggressive in response to compliance action by law enforcement agencies. Pseudonyms were used by all staff involved in the audit of the defendant to protect their identities. Evidence was given of other examples of threatening behaviour by other taxpayers against members of the ATO undertaking audits of them.[2]
[2]Confidential affidavit made 14 December 2017, [42]–[50].

Orders were then made on 23 November 2017 permitting the plaintiff to make an application for orders that would result in concealing the identity of the deponent of any affidavit made in support of the plaintiff’s application for summary judgment, and related matters. That application was made and consent orders were made on 12 February 2018 to enable the concealing of the identity of the deponent of any affidavit filed in support of the application. The application was heard on 10 May 2018. After argument the parties were given leave to file further submissions in relation to the defendant’s application for a stay of execution of any judgment entered.

As a result of these events, the defendant had ample opportunity to take action by way of objection to the assessments the subject of the claim, but by the time of the hearing had not done so. After the hearing, the Court was notified of the fact that the defendant had lodged an objection to the assessments and applied for remission of penalties on or about 25 June 2018.[3]

The plaintiff’s claim[4]

[3]Email from solicitor for the defendant dated 27 June 2018 and copy of a letter and objection dated 25 June 2018.

[4]The plaintiff’s written Outline of Submissions dated 24 April 2018 summarises the effect of the notices of assessment and the several applicable provisions of the TAA and other taxation laws; the summary that follows draws upon that Outline.

The plaintiff’s application is supported by an affidavit dated 20 February 2018 (Supporting Affidavit).[5] The identifying details of the deponent of that affidavit have been redacted in accordance with the order made on 12 February 2018.
[5]Section 255-55 of sch 1 to the TAA. In addition, each of the statements and averments in the plaintiff’s statement of claim filed on 23 June 2017 about a matter is prima facie evidence of that matter pursuant to s 255-50 of sch 1 to the TAA.

Exhibited to the Supporting Affidavit are three evidentiary certificates prepared for the purposes of s 255-45 of sch 1 to the Taxation Administration Act 1953 (Cth) (TAA).[6] They are prima facie evidence that at 19 February 2018 the total amount of $1,866,410.59 was a debt due and payable by the defendant in respect of his tax-related liabilities. These debts have continued to accrue GIC for each day that they remain unpaid. The plaintiff tendered updated certificates on the day of the hearing of the application to establish the total amount of the debt for which the plaintiff seeks summary judgment as at 10 May 2018.
[6]Exhibits 5, 7 and 8 to the Supporting Affidavit.

Income tax and Medicare levy liabilities

The plaintiff seeks summary judgment in respect of the defendant’s income tax and Medicare levy liabilities for the relevant years, which amounted to $1,166,859.58 including GIC as at 19 February 2018,[7] together with further GIC to the date of judgment. The defendant’s income tax and Medicare levy liabilities comprise:
[7]Exhibit 7 to the Supporting Affidavit.

(a) $103,256.40 in respect of the year of income ended 30 June 2009 (2009 year), notified by a notice of assessment issued on 11 November 2016, due and payable on 23 November 2009;[8]
[8]Exhibit 1 to the Supporting Affidavit. For this year and the 2010 year, the date on which the income tax that was assessed became due and payable was determined in accordance with the former s 204(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) as 21 days after the due date for lodgement. The date on which the defendant’s income tax returns were due to be lodged for each of the relevant years is set out in paragraph 18 of the Supporting Affidavit.

(b) $57,513.75 in respect of the year of income ended 30 June 2010 (2010 year), notified by a notice of assessment issued on 11 November 2016, due and payable on 22 November 2010;[9]
[9]Exhibit 2 to the Supporting Affidavit.

(c) $31,612.90 in respect of the year of income ended 30 June 2011 (2011 year), notified by a notice of assessment issued on 11 November 2016, due and payable on 21 November 2011;[10]
[10]Exhibit 3 to the Supporting Affidavit. For this year of income and the later years of income, the date on which the income tax that was assessed became due and payable was determined in accordance with s 5-5(5) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).

(d) $135,486.45 in respect of the year of income ended 30 June 2012 (2012 year), notified by a notice of assessment issued on 11 November 2016, due and payable on 21 November 2012;[11]
[11]Exhibit 4 to the Supporting Affidavit.

(e) $135,368.40 in respect of the year of income ended 30 June 2013 (2013 year), notified by a notice of assessment issued on 11 November 2016, due and payable on 21 November 2013;[12]

(f) $247,734.50 in respect of the year of income ended 30 June 2014 (2014 year), notified by a notice of assessment issued on 11 November 2016, due and payable on 21 November 2014;[13] and

(g) GIC, which has accrued on each of the defendant’s unpaid income tax liabilities from the date on which the income tax became due and payable.

[12]Exhibit 5 to the Supporting Affidavit.

[13]Exhibit 6 to the Supporting Affidavit.

Under item 2 of the table in s 350-10(1) of sch 1 to the TAA, each of the notices of assessment of income tax dated 11 November 2016 issued to the defendant is conclusive evidence that the assessment was properly made and, except in proceedings under pt IVC of the TAA on review or appeal relating to the assessment, that the amount and particulars of the assessment are correct.[14]
[14]Formerly s 177 of the ITAA 1936: see items 11 and 24 of pt 1, and item 73 of pt 2 of sch 2 to the Treasury Legislation Amendment (Repeal Day) Act 2015 (Cth) (2015 Amending Act). Item 2 of s 350-10(1) was substituted on 1 April 2017 by s 2 and item 88 of pt 2 of sch 4 of the Tax and Superannuation Laws Amendment (2016 Measures No 2) Act 2017 (Cth) (2017 Amending Act) so that it refers to a ‘notice of assessment under a taxation law’. ‘Taxation law’ is defined in s 995-1 of the ITAA 1997 for the purposes of sch 1 to the TAA: TAA s 3AA.

Income tax which remains unpaid after it has become due and payable is a tax-related liability that the plaintiff is entitled to sue to recover in a court of competent jurisdiction.[15] Specifically, in relation to the 2011 year and later years, income tax that is due and payable under s 5-5 of the ITAA 1997 is a tax-related liability, as defined, under item 37 of the table in s 250-10(2) of sch 1 to the TAA.[16]
[15]TAA sch 1 s 255-5.
[16]Division 5 of the ITAA 1997 applies in relation to income tax that a taxpayer must pay for the 2010–11 financial year and later financial years: see s 5-5 of the Income Tax (Transitional Provisions) Act 1997 (Cth) (Transitional Act).

In relation to the 2009 year and the 2010 year, income tax was a tax-related liability under former item 55 of the table in s 250-10(1) of sch 1 to the TAA, being the item that previously applied to ‘income tax, including any liability taken to be income tax for the purposes of section 204’. The reference to ‘section 204’ in former item 55 was a reference to former s 204 of the ITAA 1936, a provision that was repealed from 1 July 2010 by s 3 and item 2 of pt 1 of sch 1 to the Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) (2010 Amending Act). However, the transitional provision at item 56 of pt 3 of sch 1 to the 2010 Amending Act ensured that s 204 of the ITAA 1936 (excluding s 204(3)) continued to apply on and after 1 July 2010 in relation to income tax to which div 5 of the ITAA 1997 does not apply.

GIC has accrued (and continues to accrue) on the unpaid income tax liabilities of the defendant in accordance with s 5-15 of the ITAA 1997.[17] GIC is calculated daily on a compounding basis in accordance with pt IIA of the TAA and the GIC for a given day becomes due and payable at the end of that day under s 8AAE of the TAA. GIC due and payable under s 8AAE of the TAA is a tax-related liability that the plaintiff is entitled to sue to recover in a court of competent jurisdiction.[18]
[17]Section 5-15 of the ITAA 1997 applies from 1 July 2010 to impose GIC in respect of all years due to the operation of s 5-10 of the Transitional Act, item 56 of pt 3 of sch 1 to the 2010 Amending Act and former s 204(3) of the ITAA 1936.
[18]TAA sch 1 s 255-5 and item 70 of the table in TAA sch 1 s 250-10(2).

Medicare levy and Medicare levy surcharge are treated in the same way as income tax under both sch 1 to the TAA and the ITAA 1997,[19] meaning that the outline of the applicable provisions set out in paragraphs 11 to 13 above apply with equal force to the Medicare levy notified in the notices of assessment of income tax.
[19]TAA sch 1 s 90-1.

Administrative penalties

The plaintiff also seeks summary judgment in respect of the defendant’s liability to pay two types of administrative penalties:

(a) administrative penalties under s 284-75(3) of sch 1 to the TAA in respect of the defendant’s failure to provide a return by the date it was required to be given in respect of each of the relevant years; and

(b) administrative penalties under s 286-75 of sch 1 to the TAA in respect of the defendant’s failure to lodge an income tax return as required by s 161(1) of the ITAA 1936 for each of the relevant years.

The Commissioner of Taxation (‘the Commissioner’) is required by s 298-30 of sch 1 to the TAA to make an assessment of the amount of administrative penalties imposed under s 284-75. Therefore, notices of assessment of administrative penalty for failing to provide a document were issued to the defendant in respect of each of the relevant years.[20] In contrast, the administrative penalties imposed by s 286-75 of sch 1 to the TAA for each of the relevant years were notified to the defendant in accordance with s 298-10 of sch 1 to the TAA.[21]
[20]Paragraphs 33 to 42 of the Supporting Affidavit, and exhibits 15 to 42.
[21]Paragraphs 18 to 32 of the Supporting Affidavit, and exhibits 8 to 14.

Administrative penalties for failure to provide a return

The plaintiff seeks summary judgment in respect of the defendant’s liability to pay administrative penalties under the assessments of penalty issued for the relevant years, which amounted to $695,076.12 including associated GIC as at 19 February 2018,[22] together with further GIC to the date of judgment.
[22]Exhibit 21 to the Supporting Affidavit.

The Commissioner assessed the amount of administrative penalty that the defendant was liable to pay under div 284 of sch 1 to the TAA in respect of the relevant years under s 298–30 of sch 1 to the TAA as follows:

(a) $77,442.30 in respect of the 2009 year, which became payable on 28 November 2016,[23] was notified by the notice of assessment of penalty dated 11 November 2016;[24]
[23]The date on which the penalty becomes due for payment is the day specified in the notice: TAA sch 1 s 298-15.
[24]Exhibit 15 to the Supporting Affidavit.

(b) $51,762.40 in respect of the 2010 year, which became payable on 28 November 2016, was notified by the notice of assessment of penalty dated 11 November 2016;[25]
[25]Exhibit 16 to the Supporting Affidavit.

(c) $28,451.60 in respect of the 2011 year, which became payable on 28 November 2016, was notified by the notice of assessment of penalty dated 11 November 2016;[26]
[26]Exhibit 17 to the Supporting Affidavit.

(d) $121,937.80 in respect of the 2012 year, which became payable on 28 November 2016, was notified by the notice of assessment of penalty dated 11 November 2016;[27]

(e) $121,831.60 in respect of the 2013 year, which became payable on 28 November 2016, was notified by the notice of assessment of penalty dated 11 November 2016;[28] and

(f) $222,961.05 in respect of the 2014 year, which became payable on 28 November 2016, was notified by the notice of assessment of penalty dated 11 November 2016.[29]

[27]Exhibit 18 to the Supporting Affidavit.

[28]Exhibit 19 to the Supporting Affidavit.

[29]Exhibit 20 to the Supporting Affidavit.

Under item 2 of the table in s 350-10(1) of sch 1 to the TAA, each of the notices of assessment of administrative penalty dated 11 November 2016 issued to the defendant is conclusive evidence that the assessment was properly made and, except in proceedings under pt IVC of the TAA on review or appeal relating to the assessment, that the amount and particulars of the assessment are correct.[30]
[30]Formerly s 298-30(3) of sch 1 to the TAA: see items 11 and 71 of pt 1 and item 73 of pt 2 of sch 2 to the 2015 Amending Act. Item 2 of s 350-10(1) was substituted on 1 April 2017 by s 2 and item 88 of pt 2 of sch 4 of the 2017 Amending Act.

Administrative penalties that remain unpaid after they are due and payable are a tax-related liability that the plaintiff is entitled to sue to recover in a court of competent jurisdiction.[31] Specifically, administrative penalties are a tax-related liability, as defined, under item 140 of the table in s 250-10(2) of sch 1 to the TAA.
[31]TAA sch 1 s 255-5.

GIC has accrued (and continues to accrue) on the unpaid administrative penalty liabilities of the defendant in accordance with s 298-25 of sch 1 to the TAA. As stated in paragraph 13 above, GIC is also a tax-related liability that the plaintiff is entitled to sue to recover in a court of competent jurisdiction.[32]
[32]TAA sch 1 s 255-5 and item 70 of the table in TAA sch 1 s 250-10(2).

Administrative penalties for failure to lodge a document

The plaintiff seeks summary judgment in respect of the defendant’s liability to pay administrative penalties that were notified to the defendant in respect of each of the relevant years in accordance with s 298-10 of sch 1 to the TAA, which amounted to $4,474.89 including associated GIC as at 19 February 2018,[33] together with further GIC to the date of judgment.
[33]Exhibit 14 to the Supporting Affidavit.

Under s 286-75(1) of sch 1 to the TAA, the defendant was liable to pay the following administrative penalties in respect of his failure to lodge a tax return for each of the relevant years, as required by s 161(1) of the ITAA 1936:

(a) $550 in respect of the 2009 year, payable on 28 November 2016,[34] notice of which was given on 8 November 2016;[35]
[34]The date on which the penalty becomes due for payment is the day specified in the notice: TAA sch 1 s 298-15.
[35]Exhibit 8 to the Supporting Affidavit.

(b) $550 in respect of the 2010 year, payable on 28 November 2016, notice of which was given on 8 November 2016;[36]
[36]Exhibit 9 to the Supporting Affidavit.

(c) $550 in respect of the 2011 year, payable on 28 November 2016, notice of which was given on 8 November 2016;[37]
[37]Exhibit 10 to the Supporting Affidavit.

(d) $670 in respect of the 2012 year, payable on 28 November 2016, notice of which was given on 8 November 2016;[38]

(e) $850 in respect of the 2013 year, payable on 28 November 2016, notice of which was given on 8 November 2016;[39] and

(f) $850 in respect of the 2014 year, payable on 28 November 2016, notice of which was given on 8 November 2016.[40]

[38]Exhibit 11 to the Supporting Affidavit.

[39]Exhibit 12 to the Supporting Affidavit.

[40]Exhibit 13 to the Supporting Affidavit.

As stated in paragraph 20 above, administrative penalties that remain unpaid after they are due and payable are a tax-related liability that the plaintiff is entitled to sue to recover in a court of competent jurisdiction.[41] Specifically, administrative penalties are a tax-related liability, as defined, under item 140 of the table in s 250-10(2) of sch 1 to the TAA.
[41]TAA sch 1 s 255-5.

GIC has accrued (and continues to accrue) on the unpaid administrative penalty liabilities of the defendant in accordance with s 298-25 of sch 1 to the TAA. As stated in paragraph 13 above, GIC is also a tax-related liability that the plaintiff is entitled to sue to recover in a court of competent jurisdiction.[42]
[42]TAA sch 1 s 255-5 and item 70 of the table in TAA sch 1 s 250-10(2).

The defence

In his defence the defendant admits all the matters that establish his liability under the tax legislation, but maintains the ‘income liability assessments’ are incorrect and overstated and that he did not make a certain capital gain assessed in the 2014 financial year.[43] No detail of the purported inaccuracies in the assessments was set out in the defence other than an assertion that ‘he did not make the capital gain assessed in the year ending 2014’. He denies liability for the GIC for the same reasons and admits his liability to the penalties, but denies that they ought to be levied.[44] These are, he concedes in his affidavit, not matters to be dealt with in this forum.[45]
[43]Defence filed 28 August 2017, [9].
[44]Defence filed 28 August 2017, [6], [9], [11], [14], [15] and [20].
[45]Affidavit of Roberto Sergio Morando made 4 April 2018, [22].

In his affidavit, the defendant gives the following evidence:[46]
[46]Ibid.

(a) For the majority of his adult life he has lived an unhealthy lifestyle which resulted in him not attending to his taxation affairs, amongst other things.

(b) On 14 February 2014 he was incarcerated (for committing a criminal offence) and served approximately 10 months in prison. He states that during this time he did not earn an income.

(c) Before he was incarcerated, he gave ‘an associate’ [unnamed] power of attorney over his affairs and that person authorised the majority of the transactions during the time he was in jail. He says he did not advise him to attend to these transactions nor did he obtain any benefit from them.

(d) In about September 2015 he became aware that the ATO was conducting an audit with respect to income allegedly received by him.

(e) Due to his general lack of understanding of these matters, he sought the assistance of a friend, Mr Tony Cottle, to help him deal with the audit. Mr Cottle claimed to be knowledgeable about the ATO’s processes. With hindsight, the defendant did not think Mr Cottle knew what he was doing.

(f) On 15 October 2015, shortly after he became aware of the audit, he was shot on his nightly walk. It was nearly fatal. The incident received ‘vast media attention’ and the defendant was left physically, mentally, emotionally, psychologically and financially devastated. He is unemployable and unable to generate an income. He is on a disability pension and will remain so for the remainder of his life.

(g) Following the shooting, the defendant experienced a long and difficult rehabilitation process. It was not until 2017 that he felt that he was healthy enough to be able to begin dealing with his personal affairs, including the ATO audit. Again, Mr Cottle assisted him liaising with the ATO.

(h) On about 30 November 2015, the ATO issued him with a position paper outlining its position with respect to the taxation years from 1 July 2008 to 30 June 2014. The position paper claims [and the defendant does not deny] that the defendant failed to lodge any tax returns for the relevant years and that the total amount payable was, at that time, in the sum of $1,598,027.53 comprising primary income tax liability, GIC, Failure To Lodge Penalties (FTL Penalties) and administrative penalties.

(i) Mr Cottle was unsuccessful in resolving the audit on his behalf and subsequently he was served with a copy of the writ commencing this proceeding in about June 2017.

(j) In July 2017 he sought the assistance of his present solicitors and instructed them that he believed that the ATO assessments were incorrect and/or excessive and that he did not make the capital gain as assessed in the 2014 financial year. His solicitors proposed that he lodge objections to the ATO’s assessments as well as request remission of the GIC and penalties. Given that the tax liability was determined on the basis of default assessments issued pursuant to s 167 of the ITAA 1936 and having regard to the ATO’s identification of ‘unexplained deposits’ into his bank accounts, he intends to set out fully in his objection an explanation as to those deposits in order to clarify which of them are properly to be regarded as income.

(k) The defendant has also instructed his solicitors to prepare an application for the remission of the GIC amount in full or in part pursuant to s 8AAG of the TAA and to apply for remission of the penalties pursuant to s 298–20 of sch 1 to the TAA.

(l) The defendant’s solicitors have indicated that the objections and remission applications should be finalised and ready for lodgement before the hearing of the application for summary judgment. Once they have been prepared and lodged the defendant is confident that the amount he will then owe to the ATO will be reduced. This will be particularly the case if the GIC and penalty amounts which together total over $1,000,000.00 are remitted.

There is no dispute that this Court may give summary judgment if satisfied that a defence has no real prospect of success,[47] nor that the applicable principles were set out in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd.[48] Nor is there any dispute in these proceedings as to the liability of the defendant to judgment in the amounts assessed by the plaintiff.
[47]CPA ss 61, 63.
[48](2013) 42 VR 27, [29] (Warren CJ and Nettle JA, with whom Neave JA agreed).

The defendant does not dispute the operation of the conclusive evidence provisions relied on by the plaintiff and accepts that in these proceedings that he is liable for the amount set out in the relevant certificates issued by the plaintiff. What the defendant seeks to do is to have an adjournment or a stay of execution to give him the time to lodge his objections against the various notices of assessment pursuant to s 14ZU of the TAA as well as applications for remission of GIC and penalties pursuant to s 8AAG of the TAA (the applications).[49]
[49]Defendant’s affidavit sworn 4 April 2018, [16]–[17].

Adjournment application
Defendant’s submissions

Counsel appearing for the defendant, who was not the Counsel who prepared a written Outline of Submissions for the defendant,[50] focused his attention on the application for a stay of execution of any judgment granted. Nevertheless, he relied on the application for an adjournment, set out at some length in the written Outline of Submissions, as well.
[50]Outline of Submissions on behalf of the defendant dated 8 May 2018.

On 30 April 2018, the defendant’s solicitor by letter to the plaintiff’s solicitor requested the plaintiff’s consent to adjourn the summary judgment summons pending the plaintiff’s review and determination of the applications.[51] The defendant contended that such a course was consistent with the overarching obligations contained in the CPA and with the Commonwealth’s obligation to act as a model litigant in that:[52]
[51]There was no evidence of this, but it was not contested by the plaintiff.
[52]Defendant’s Submissions dated 8 May 2018, [3].

(a) the adjournment would allow the plaintiff to receive and consider the objections thereby facilitating the resolution of the dispute pursuant to s 19 of the CPA;

(b) the suggested course was tantamount to the parties cooperating with a view to narrowing the issues in dispute pursuant to sections 22 and 23 of the CPA; and

(c) the obligation to act as a model litigant requires the plaintiff to act consistently in the handling of litigation and to endeavour to limit the scope of legal proceedings wherever possible.

The plaintiff responded by letter dated 2 May 2018 that it did not consent to adjourn the summons.[53]
[53]Defendant’s Submissions dated 8 May 2018, [4]. This was not contested by the plaintiff.

The defendant submitted that in determining whether to adjourn any proceeding, the Court can have regard to a number of factors including the overarching obligations in the CPA, the reason for the application, the prejudice to the defendant if an adjournment were not granted, the prejudice to the plaintiff if an adjournment were granted and any relevant public interest considerations.

The defendant then submitted that:

(a) Adjourning the summons is consistent with the parties’ complying with their overarching obligations and with the plaintiff’s obligation to act as a model litigant.

(b) Given the plaintiff’s refusal to consent to an adjournment and any stay on the execution of any judgment entered against the defendant, there will be serious prejudice to the defendant if the Court does not adjourn the proceedings because:

(i) judgment will be entered against the defendant in the sum of approximately $1,866,410.59 of which GIC and penalties alone comprise approximately $1,155,993.97 (the judgment debt);

(ii) the defendant is on a disability support pension and will not be able to pay the judgment debt;

(iii) the refusal of a stay indicates that the plaintiff’s intention is to take steps to enforce the judgment immediately;

(iv)this will presumably lead to the plaintiff seeking the issue of a bankruptcy notice against him and he will have to take steps to have that set aside on the basis of a genuine dispute as to the underlying debt; and

(v) the defendant will therefore continue to incur significant legal expenses in circumstances where the money spent on this would be preferably applied towards his taxation liability (or towards seeing the applications to determination so that the final and correct amount he owes the plaintiff is made clear).

(c) GIC continues to accrue on any amount that is owing to the plaintiff. Therefore, the plaintiff will be compensated for any delay caused by the adjournment by way of further GIC, which is at a rate that is deliberately punitive in nature.

(d) As a matter of policy, judgment entered against a defendant should always, as far as is possible, reflect the correct amount owing to a plaintiff. A strict application of the conclusive evidence provisions indicates that the Court can give credence to this principle simply by relying on the evidentiary certificates issued by the plaintiff. It is, however, artificial to ignore the evidence that the defendant will be disputing the amounts alleged to be owing by him to the plaintiff by way of lodging of the applications.

Balancing these considerations, the defendant submitted that an adjournment ought to be granted for a short period to allow the plaintiff to determine the applications and update the debt said to be owing. Otherwise, the prejudice to the defendant occasioned by not granting him an adjournment is not balanced or outweighed by any prejudice occasioned to the plaintiff.

Plaintiff’s submissions

Because of the emphasis placed by the defendant on the application for a stay of execution of any judgment, the plaintiff’s submissions on the application for an adjournment were encompassed within the argument against the application for a stay. Essentially, the argument was as follows:

(a) There is no dispute that the defendant is liable to the plaintiff for the amounts of tax, penalties and interest that has been assessed. There can be no dispute as to those liabilities in this jurisdiction.

(b) Thus, there is no defence to the application for summary judgment.

(c) The factors identified as relevant to applications for a stay of execution are also relevant to the power to grant an adjournment:

(vi)by parity of reasoning the power to grant an adjournment should be exercised sparingly and the taxpayer bears the onus of persuading the Court that an adjournment ought to be granted in the particular circumstances;

(vii) the legislation places the plaintiff in a position of special advantage and he is generally free to pursue recovery proceedings despite the pendency of proceedings under pt IVC of the TAA (application to the Administrative Appeals Tribunal (AAT) for a review of an objection decision or an appeal to the Federal Court of Australia from that objection decision), and that must include any objection to an assessment made or to be made;[54]
[54]Sections 14ZZM and 14ZZR of the TAA manifest a legislative policy which gives priority to the recovery of taxation revenue notwithstanding that a taxpayer has a pt IVC proceeding on foot.

(viii) the defendant does not expose any meritorious basis for his proposed objections to the assessments. He relies on mere assertion without any detailed justification. There is also no suggestion that the plaintiff has abused his position;

(ix) the defendant asserts by his Counsel, but gives no evidence, that the properties identified in the position paper as owned by him (registered in his name) are not his beneficially;

(x) the mere obligation to pay income tax of itself does not impose extreme hardship; and

(xi) the possibility that the taxpayer may be bankrupted is generally not of itself an extreme hardship.

(d) The assessments of income tax for the relevant years go back to 2009. The defendant lodged no returns and the assessments are based on asset betterment and unexplained deposits into his bank accounts.

(e) The plaintiff’s position paper,[55] which is an informal procedure for which there is no specific statutory basis, sets out in considerable detail the basis of the assessments made by the plaintiff.
[55]Exhibit RSM-1 to the affidavit of the defendant made on 4 April 2018.

(f) The position paper sets out in detail how the asset betterment assessment was arrived at, and also the unexplained deposits into his bank accounts. There is no suggestion by the defendant of any impropriety in that method of arriving at the assessment.

(g) The defendant has had a considerable period since the commencement of the proceeding to lodge an objection against the assessments and to apply for remission of the penalties, and although the time to do so had not expired, notwithstanding the commencement of this proceeding over 12 months ago, had not done so.

(h) The reason that the defendant was still within time to lodge his objections to the assessments was that he had failed altogether to lodge his tax returns for the relevant years.

(i) The defendant’s delay is significant and that delay, with the exception of a period between October 2015 and 2017 is substantially unexplained. Apart from the so called ‘unhealthy lifestyle’ led by the defendant, there is no explanation for his failure to attend to filing his tax returns for the relevant years.

Consideration

It is well to recall that whether to grant an adjournment of an application of this kind, as with an application to adjourn the trial of a proceeding, is a matter of the exercise of the inherent discretion of the Court. Whether to grant an adjournment turns on balancing the interests of justice to both parties. The plaintiff is entitled to an early adjudication of his rights unless to do so will seriously prejudice the defendant or give rise to serious injustice to him.

There is in fact no suggestion of any serious prejudice or injustice to the defendant from the entry of judgment itself. There is simply no defence to the claim now brought based on the assessments made by the plaintiff. The only defence is one that cannot be advanced except in another jurisdiction. The only prejudice arises from the assumption that the plaintiff will seek to enforce the judgment, perhaps by the issue of a bankruptcy notice, which will, again perhaps, require the defendant to expend significant funds in seeking to defend an application, based on non-compliance with the bankruptcy notice, for the sequestration of his estate. All these things, as I shall refer to in connection with the application for a stay, raise matters that may or may not eventuate and which should either be dealt with by a stay of execution in this Court or by a court exercising jurisdiction in bankruptcy adjourning or staying an application for a sequestration order against the defendant, if it comes to that.

The reliance by the defendant on the CPA is, in the context of this case, misplaced. It was said that an adjournment would facilitate the resolution of the dispute pursuant to s 19 of the CPA. That section says, in substance, that for the purpose of avoiding undue delay and expense, a person to whom the overarching obligations apply must not take any step in connection with any claim or response to any claim in a civil proceeding unless the person reasonably believes that the step is necessary to facilitate the resolution or determination of the proceeding.

Applying that section to this proceeding, it is the defendant that takes a step (applying for an adjournment) that cannot facilitate the resolution or determination of the dispute, for the simple reason that there is no dispute in this Court as to the liability of the defendant. The only place where the resolution of any dispute (which at the time of the hearing was not actually raised) can be adjudicated is in another jurisdiction altogether. For the same reason, the overarching obligation to use reasonable endeavours to resolve a dispute by agreement (s 22 of the CPA) and to narrow the issues in dispute (s 23 of the CPA), has no application as there is nothing to resolve in this jurisdiction.

For the reasons advanced by the plaintiff, there is no warrant to adjourn the hearing of the application for summary judgment. The next argument advanced by the defendant relates to the application for a stay, to which I now turn.

Stay application
Defendant’s submissions

The defendant submitted that if an adjournment is not allowed, and the Court is minded to grant the orders sought by the plaintiff for summary judgment, he applies to the Court for a stay on the execution of the judgment pursuant to r 66.16 of the Rules:

(a) until the objections are reviewed and determined by the plaintiff;

(b) for two months from the date of the summons; or

(c) until a date determined by the Court.

By letter dated 7 May 2018 from the defendant’s solicitor to the plaintiff’s solicitor, the defendant requested the plaintiff’s consent to stay any judgment that is entered against the defendant pending consideration of the defendant’s objections to the assessments and any determination of applications to review or appeal a rejection of the objections. In the alternative, the defendant requested the plaintiff’s consent to provide an undertaking that he will not enforce the judgment until the objections are determined or that he will not enforce the judgment before a date proposed by the plaintiff and on 48 hours’ notice to the defendant. The defendant indicated that if the plaintiff was minded to consent to any of the three scenarios outlined in the letter of 7 May 2018, the defendant would agree to consent to judgment.[56] The request was refused.[57]
[56]Defendant’s Submissions dated 8 May 2018, [6]. Although the letters were not in evidence, they were not disputed by the plaintiff.
[57]Defendant’s Submissions dated 8 May 2018, [7].

The defendant referred to the principles that apply to the granting of a stay by a court presiding over tax recovery proceedings set out in Deputy Commissioner of Taxation v Arico[58] and Southgate Investment Funds Ltd v Deputy Commissioner of Taxation.[59] Applying those principles to this case, the defendant submitted that the Court should grant a stay on the execution of any judgment entered against the defendant because:
[58][2017] VSC 746, [72] (Kennedy J) (Arico).
[59](2013) 211 FCR 274 (Southgate).

(a) In deciding whether to grant a stay, the Court can take into account the merits of any pending pt IVC proceeding. While there are no such proceedings on foot, the defendant has made his intention to lodge the applications clear to the plaintiff and has taken steps to instruct lawyers to assist him in the process. While it cannot be expected for the plaintiff to have assessed the strength of the merits of the applications, in circumstances where the majority of the income that was assessed to the defendant was in respect of ‘unexplained deposits’ (as the ATO described it in its position paper issued to the defendant), this must lead to the conclusion that any explanation provided by the defendant in respect of those amounts is likely to change the amount owing to the plaintiff.

(b) The merits of any challenge to the assessments is but one factor for the Court to take into account in deciding whether or not to grant the stay sought by the defendant.

(c) The plaintiff’s assessment of tax based on default assessments is a relevant factor to be taken into account. In this regard, the case of Deputy Commissioner of Taxation v Gergis[60] is relevant. In that case, Cummins J found that the fact the taxpayer’s taxable income was assessed on an ‘asset betterment’ basis was a relevant factor in favour of granting a stay.[61]
[60](1991) 22 ATR 1.
[61]Ibid 7.

(d) The defendant has two years to object to the notices of assessment and this is especially relevant.[62] The period within which the defendant may object expires on 11 November 2018.
[62]TAA s 14ZW(1).

(e) The defendant is on a disability support pension and the fact that he will not be able to engage in paid employment in his current state of ill health is an example of a case of extreme hardship and a stay ought to be granted in those circumstances. In particular:

(xii) the conduct of the plaintiff in refusing to consent to an adjournment or a stay indicates that the plaintiff intends to take enforcement action immediately after judgment is entered;

(xiii) this is likely to be in the form of bankruptcy proceedings; and

(xiv) the plaintiff will then be required to divert his limited financial resources to defending or seeking to stay bankruptcy proceedings and this will result in him not having funds to see the process in respect of the applications to the end or to exercise his rights to appeal any adverse decision to the AAT or the Federal Court. In Arico, Kennedy J stated that this factor warrants special consideration.[63] Her Honour ultimately disallowed a stay on the basis that the Deputy Commissioner had provided an undertaking in similar terms to that which the defendant has sought from the plaintiff in this case.

[63][2017] VSC 746, [85].

In argument, Counsel for the defendant also submitted that should the defendant be made bankrupt then it is likely that he will lose his rights under pt IVC of the TAA.[64] In the result, it was submitted, that there is a very real risk that if summary judgment were given in favour of the plaintiff, without a stay of execution, the defendant would be deprived of his rights under pt IVC of the TAA.
[64]Relying on the reasoning in McCallum v Commissioner of Taxation (1997) 75 FCR 458 (McCallum).

In the circumstances, the defendant submitted that the Court should allow a stay especially having regard to the incongruous conduct of the plaintiff in refusing to undertake not to enforce the judgment pending review and determination of the applications (and refusing to provide that undertaking on terms imposed by the plaintiff). The plaintiff’s conduct also undermines the time limits imposed by the TAA in allowing the defendant two years from the issue of the assessments to object to same. If the plaintiff pursues bankruptcy proceedings and the defendant’s limited financial resources are depleted as a result, then he will be deprived of objecting within the ambit of the rights conferred upon him by the tax legislation.

Plaintiff’s submissions

The plaintiff opposed the stay application for reasons similar to those advanced in opposition to an adjournment (above at [36]). In particular, Counsel for the plaintiff referred to and relied on the factors identified in Southgate (referred to below at [71]) and in particular to one of the decisions relied on in Southgate, being Trade World Enterprises Pty Ltd v Deputy Commissioner of Taxation[65] and the observations of Nettle JA (as his Honour then was), in particular the following passages:[66]

As the High Court stated in Clyne v. Deputy Commissioner of Taxation (N.S.W.),[67] the legislative scheme established in relation to tax recovery, as manifested in provisions like s.14ZZM of the Taxation Administration Act 1953, reflects a clear policy in favour of the Revenue against the taxpayer. The Commissioner is placed by the legislature in a position of special advantage and thus in general is free to pursue recovery proceedings, despite outstanding appeals and reviews against the disallowance of objections.
So to say is not to deny that this court has jurisdiction to stay recovery proceedings pending review of a disallowance of objection against assessments. It is clear that it does. But high authority makes plain that the policy of the legislation, as stated in provisions like s.14ZZM, is a matter to which great weight must be attached.
Accordingly, as the New South Wales Court of Appeal said in Deputy Commissioner of Taxation (N.S.W.) v. Mackey,[68] it would be too narrow a view of the discretion to grant a stay of proceedings or execution merely because an appeal or review were pending, or because on examination of a pending appeal or review there may appear to be an arguable case, or perhaps complex questions which the Administrative Appeals Tribunal or the Federal Court can determine. While hardship to the taxpayer and the merits of the appeal or review are relevant matters, other considerations are involved, including the Commissioner's right to have tax assessed paid. Furthermore, as that court said, if a taxpayer has been party to a contrivance to avoid his or her liability to tax, the court should not intervene in exercise of its overriding discretion to stay proceedings or execution otherwise than in the most exceptional circumstances.
In Cywinski v. Deputy Commissioner of Taxation, the predecessor of this Court embraced the principles adumbrated in Mackey, and so held that a stay of execution simply to facilitate contesting an assessment should be refused as something which would defeat the policy of the legislation…
Consistently with Mackey, Kaye, J [in Cywinski v. Deputy Commissioner of Taxation [1990 VR 193] went on to point out that the degree of merit of the appeal or review may also be relevant to the exercise of the discretion, and he contrasted by way of example cases in which it is clear that an appeal or application for review is without merit and, at the other end of the spectrum, cases where the assessment complained of has been made by the Commissioner contrary to a decision of the High Court or is otherwise manifestly wrong. As his Honour observed, however, between those two extremes lies the bulk of cases, in which the objection is neither totally without merit nor incontestable, and thus in which a judge in recovery proceedings may be unable to form even a tentative view of the chance of success of the appeal or review. In such cases, it was said, a judge's discretion in refusing a stay does not miscarry by reason only of the judge being unable on the material before him or her to reach a view as to the taxpayer's prospects of success in overturning the assessment.
Different considerations may apply once judgment is obtained and the dispute comes before the court by way of an application to adjourn proceedings for the winding up of the taxpayer. It has been held that, in general, a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of the debtor where an appeal is pending against the judgment which is the foundation of the bankruptcy proceedings.[69] Similar considerations operate in applications to wind up companies on the grounds of insolvency. But that is not this case.

[65](2006) 64 ATR 316 (Trade World).

[66]Ibid [19]–[24] omitting cited material from Deputy Commissioner of Taxation (NSW) v Mackey (1982) 64 FLR 432, 435.

[67](1983) 48 ALR 545, 547.

[68](1982) 64 FLR 432, 435.

[69]Provided the appeal is based on genuine and arguable grounds.

The plaintiff submitted that the paucity of the defendant’s evidence before the Court is a matter clearly relevant to the exercise of the discretion whether or not to grant a stay. It is the defendant who bears the burden of satisfying the Court that the stay should be granted, and the absence of that evidence is a matter that should be taken into account in refusing to grant a stay of execution. In particular:

(a) there is no evidence as to the merits of any objection to the assessments beyond what is contained in the plaintiff’s position paper and the defendant’s bare assertions in his defence and affidavit;

(b) the evidence as to the defendant’s impecuniosity – that he is a pensioner – is contradicted by the searches undertaken by the plaintiff and referred to in the position paper showing that the defendant is the registered proprietor of properties at 11 Louise Baille Avenue, Narre Warren South, 1/11, 2/11 and 3/11 Parkwood Court, Deer Park;

(c) there is no evidence to support the assertion made by Counsel for the defendant that the defendant is not the beneficial owner of the properties;

(d) the material put before the Court by the defendant is insufficient to enable any conclusion about defendant being in a position of extreme hardship if the Court proceeds to enter judgment against him; and

(e) the bankruptcy, or threat of bankruptcy, itself cannot be the discretionary basis for a decision to stay these proceedings and, in any event, this Court is not the appropriate forum for raising that particular issue as a matter of discretion.

Counsel for the plaintiff contended that if the plaintiff sought the issue of a bankruptcy notice based on a judgment in this proceeding, and it was issued, it would be open to the defendant to seek a stay of the operation of that notice or to seek to set it aside on the basis that there is a current objection to the assessments or a review of a decision to reject an objection to the assessments. Counsel relied on the proposition referred to in the reasons of Nettle JA in Trade World referred to above that:

…in general, a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of the debtor where an appeal is pending against the judgment which is the foundation of the bankruptcy proceedings.[70]

[70](2006) 64 ATR 316, [24] (citations omitted); provided the appeal is based on genuine and arguable grounds.

This passage in the judgment of Nettle JA does not address, however, the position if the plaintiff sought to issue a bankruptcy notice and the defendant sought to set it aside or to stay it. The position would be that there is a pending objection or review of, or appeal from, an objection decision. The question was whether that would give rise to the same response from the court exercising jurisdiction in bankruptcy as in the case of a pending appeal against the judgment which is the foundation of the bankruptcy proceedings?

Counsel for the plaintiff was not in a position to address fully this question, and sought an opportunity to look into it before making any further submissions. Thus, at the conclusion of the hearing on 10 May 2018, the parties were given the opportunity to file and serve supplementary submissions relating to the hardship that may be suffered by the defendant in the event that he were made bankrupt, and what if anything, the authorities said about that issue.

Supplementary submissions
Plaintiff

In submissions filed after the hearing the plaintiff expanded on the themes referred to above and submitted that:

(a) The material before the Court does not support the proposition that bankruptcy is highly likely, or probable, if the stay is not granted.

(b) That fact alone is sufficient to justify refusing to grant the stay sought by the defendant notwithstanding any implications bankruptcy might have for his right to object.

(c) The mere possibility of bankruptcy is not of itself an extreme personal hardship that justifies the grant of a stay of taxation debt recovery proceedings.[71]
[71]Arico [2017] VSC 746, [72(i)] (Kennedy J); Commissioner of Taxation v Bosanac (No 2) [2016] FCA 945, [16] (McKerracher J); Deputy Commissioner of Taxation v Denlay (2010) 80 ATR 109, 120 [45] (Chesterman JA, with whom McMurdo P and Muir JA agreed) (Denlay); Deputy Commissioner of Taxation v Akers (1989) 89 ATC 4725, 4727 (Nathan J) (Akers).

(d) That the power to grant a stay should be exercised sparingly in light of the statutory regime governing the recovery of tax debts, which implements a long-standing policy of protection of the revenue.[72]
[72]Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473, 492 [44] (Gummow ACJ, Heydon, Crennan and Kiefel JJ) (Broadbeach).

(e) That the defendant has not yet lodged any objections and there is no material before the Court that would allow an assessment of the merits of the position that the defendant might take in the objections or in any subsequent proceedings brought under pt IVC of the TAA.

(f) It is only if the court having jurisdiction in bankruptcy makes a sequestration order on hearing the creditor’s petition under s 52 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) that the defendant would be bankrupted. That court has a discretion either to refuse such an order for some ‘other sufficient cause’ under s 52(2)(b) of the Bankruptcy Act or to adjourn the proceedings under s 33(1)(a) of that Act.[73]
[73]Endresz v Australian Securities and Investments Commission (No 2) (2015) 228 FCR 334, 340 [34]–[38], 341 [41] (Edmonds, Gordon and Beach JJ).

(g) It is this jurisdiction to which Nettle JA referred in Trade World[74] as raising different considerations to a request for a stay made in the context of tax debt recovery proceedings. The Commissioner’s concession to that effect provided in winding up proceedings in Broadbeach[75] applies equally to bankruptcy proceedings.

(h) As a matter of principle, it would be open to the defendant to raise the subject matter of his objections to the assessments as a basis for seeking an adjournment in any bankruptcy proceedings. This is because the court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as a foundation of the bankruptcy proceedings, provided the appeal is based on genuine and arguable grounds.[76] If the defendant were to do so, he would need to address the merits of his challenge to the assessments by evidence, having regard to the fact that he bears the burden of proving that the assessments are excessive and of establishing precisely what the assessments should have been.[77]

(i) It is not appropriate for this Court to grant a stay based on speculation that the defendant might object against the assessments at some future point on a basis that has merit.

[74](2006) 64 ATR 316, 323 [24].

[75](2008) 237 CLR 473, 484 [13].

[76]Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137, 148 (Davies, Lockhart and Neaves JJ) (Ahern); Commissioner of Taxation v Cumins (2008) 70 ATR 855, 859 [16] (Gilmour J).

[77]TAA ss 14ZZK(b), 14ZZO(b); see also Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301, [63] (Bennett, Edmonds and Gordon JJ).

The plaintiff conceded that if the defendant were bankrupted he would lose his right to lodge objections against the assessments issued to him in respect of each of the relevant years.[78] He does so because the statutory right to object, whether under s 175A of the ITAA 1936 in respect of the assessments of income tax or s 298-20 of sch 1 to the TAA in respect of the assessments of penalty, is ‘property’ that vests in the trustee in bankruptcy under s 58 of the Bankruptcy Act.[79] It is therefore unnecessary to consider the question of whether the meaning given to the word ‘dissatisfied’ in s 14ZZ of the TAA by the majority of the Full Federal Court of Australia in McCallum[80] applies equally to the use of the word ‘dissatisfied’ in the provisions that confer the right to object against an assessment on the taxpayer.
[78]See the position taken by the Commissioner on this point in Australian Taxation Office, Income Tax: Objections Against Income Tax Assessments, TR 2011/5, 21 May 2014 (consolidated ruling), [102].
[79]Cf the right to appeal against the judgment debts considered by the High Court in Cummings v Claremont Petroleum NL (1996) 185 CLR 124, 132–3 (Brennan CJ, Gaudron and McHugh JJ) (Cummings).
[80](1997) 75 FCR 458.

In appropriate cases, the Commissioner may offer an undertaking that he would not proceed to bankruptcy pending the determination of proceedings brought under pt IVC of the TAA to ensure that a taxpayer’s rights of appeal are not stultified by bankruptcy. However, the plaintiff submitted that an undertaking of that type is not appropriate in this proceeding presently because:

(a) despite a year and a half having elapsed, the defendant has still not yet lodged objections against the assessments that were made in November 2016;

(b) there is no material available that indicates that the defendant’s position has any merit; and

(c) the Commissioner’s position is not otherwise protected, for instance, by freezing orders.

In any event, it is arguable that the defendant’s loss of the personal right to object would still not justify granting the stay. Particularly in circumstances where:

(a) the defendant has been dilatory in attending to his taxation affairs;[81] and

(b) the defendant’s trustee in bankruptcy may still be able to object against the assessments assuming the defendant’s proposed basis for challenging the assessments actually has sufficient merit for the trustee to pursue the challenge.[82]

[81]Deputy Commissioner of Taxation v Ho (1996) 32 ATR 269, 274 (Ireland J) (Ho), discussed in Denlay (2010) 80 ATR 109, 118 [32] (Chesterman JA, with whom McMurdo P and Muir JA agreed).

[82]See paragraphs 134(1)(j) and (o) of the Bankruptcy Act. See also McCallum (1997) 75 FCR 458, 473D-E per Lehane J in obiter concerning whether the right to object would be ‘legal proceedings’ under s 134(1)(j) of the Bankruptcy Act, without deciding the issue. See generally Commissioner of Taxation v Bosanac [2016] FCA 448, [72]–[79] (McKerracher J).

Defendant

The defendant’s supplementary submissions dealt with two questions. The first question is whether the defendant ceases to be able to undertake a review or appeal of the assessments if he were to become an undischarged bankrupt?[83] The second question is whether the defendant could either seek to stay operation of, or set aside, a bankruptcy notice obtained by the plaintiff in respect of any judgment granted by this Court?[84]

The first question

[83]Transcript of Proceedings, Deputy Commissioner of Taxation v Morando (Supreme Court of Victoria, S CI 2017 02394, Derham AsJ, 10 May 2018) 62.1–5 (Transcript).

[84]Transcript, 51.15–24, 51.31–52.6.

In relation to the first question, the defendant submitted that he will cease to be able to undertake a review or appeal of the assessments once he becomes an undischarged bankrupt. This is because, in the ‘usual case’, an undischarged bankrupt is unable to show that he or she is ‘dissatisfied’ with an objection decision.[85] Therefore that person cannot seek a review of, or appeal, the objection decision — being ‘dissatisfied’ is the relevant requirement for standing.[86] The reasoning adopted in McCallum is an application of the reasoning in Cummings[87] as applied to pt IVC of the TAA and a liability arising from an assessment raised by the Commissioner.[88] An undischarged bankrupt has no financial interest in, or standing to challenge, a provable debt.[89]
[85]McCallum (1997) 75 FCR 458, 470B (Whitlam J), 475D-E (Lehane J).
[86]TAA s 14ZZ(1). For completeness, it should be noted that all objection decisions are ‘reviewable objection decisions’ unless they are an ‘ineligible income tax remission decision’ being a decision related to the remission of certain types of additional tax; see TAA s 14ZQ ‘reviewable taxation decision’, s 14ZS(1). The distinction is not relevant here, no decision to which the defendant may object is an ineligible income tax remission decision.
[87](1996) 185 CLR 124.
[88]Robertson v Deputy Commissioner of Taxation (2004) 137 FCR 513, 518–19 [22] (Spender, Branson and Stone JJ).
[89]Cummings (1996) 185 CLR 124, 137–8 (Brennan CJ, Gaudron and McHugh JJ). See also Bankruptcy Act s 82(1) which provides that all debts existing as at a person’s date of bankruptcy are ‘provable in his or her bankruptcy.’ This includes administrative penalties given that they are not a penalty ‘imposed by a court’ and therefore not subject to the exclusion provided by s 82(3) of that Act.

Circumstances falling outside the ‘usual case’ are where the objection decision has relevance to the taxpayer following his or her discharge from bankruptcy.[90] Although no particular example was given in McCallum, it was accepted that the following circumstances were insufficient to take an undischarged bankrupt’s circumstances outside the ‘usual case’:

(a) that a successful challenge could result in a surplus to the bankrupt’s estate;[91]

(b) the effect of any assessment or objection on the bankrupt’s reputation.[92]

[90]McCallum (1997) 75 FCR 458, 470 (Whitlam), 475 (Lehane J).

[91]Ibid 475E-F (Lehane J).

[92]Ibid 475E-F (Lehane J).

If, on the other hand, the objection decision has consequences in relation to a bankrupt’s future tax liabilities following discharge then that would fall outside the usual case.[93]
[93]Ibid 475E-F (Lehane J).

The defendant’s assessments relate to income tax liabilities and administrative penalties for prior years and have no continuing relevance to any future tax liabilities he may have. It was submitted that his circumstances do not fall outside the ‘usual case’ and, to the contrary, they fall within the category of where a successful challenge could result in a surplus to the bankrupt’s estate.

The principle stated in McCallum equally applies to an undischarged bankrupt’s standing to lodge an objection to an assessment. In both objecting to an assessment and in seeking review of, or appeal from, an objection decision, the requirement as to standing is that the person is ‘dissatisfied’.[94] Grapsas v Federal Commissioner of Taxation[95] confirms that, in the usual case, an undischarged bankrupt cannot be dissatisfied with an assessment and therefore may not lodge an objection to it.[96] In those cases, the proper person who is dissatisfied is the bankrupt’s trustee.[97]

The second question

[94]See ITAA 1936 s 175A(1); TAA sch 1 s 298-30(2) ‘Assessment of penalties under Division 284 or section 288-115’ and TAA s 14ZZ(1).

[95](2011) 86 ATR 326.

[96]Ibid 329–30 [13] (Gordon J).

[97]Bankruptcy Act s 134(1)(j).

The defendant submitted that he cannot either seek to stay the operation of, or set aside, a bankruptcy notice obtained by the plaintiff in respect of any judgment granted by this Court. Further, it is of no relevance to this Court whether future bankruptcy proceedings could be stayed at a later time in any event.

A bankruptcy notice cannot be set aside if the judgment to which it relates arises from an assessed tax liability protected by a conclusive evidence provision.[98] The High Court’s expression of that principle leaves no doubt as to its force.[99] Any judgment given by this Court would fall within the principle and, therefore, the defendant could not seek to set aside, or stay the operation of, any bankruptcy notice obtained by the Deputy Commissioner.
[98]See Clyne v Deputy Commissioner of Taxation (NSW) (No 3) (1983) 14 ATR 563, 564–5 (Gibbs CJ), 565 (Murphy, Wilson, Brennan and Deane JJ concurring) (Clyne).
[99]See also the opening remark of Gibbs CJ in Clyne where it was said the ‘[The present appeal] is without merit of any kind and illustrates the desirability of appeals to this court generally being only by way of special leave. If special leave to appeal had been necessary in the present case it would not have been obtained. That would have meant that the court would have had the time, which this appeal has taken, available to deal with a case which warrants the consideration of the court’: ibid 564.

The defendant submitted that a court exercising bankruptcy jurisdiction has a discretion to make sequestration orders under s 52 of the Bankruptcy Act in accordance with the following principles:

(a) a petitioning creditor has some prima facie right to sequestration orders on proof of the matters set out in s. 52(1) of that Act;[100]

(b) s 52(2)(b) of that Act gives the court a discretion to adjourn or dismiss a petition where the debtor demonstrates a ‘genuine dispute’ as to the liability to pay the relevant debt;[101]

(c) the court can enquire as to whether a judgment is founded on a ‘real debt’ and, in general, a court exercising jurisdiction in bankruptcy should not sequestrate an estate where an appeal is pending against the judgment relied on as the foundation for the bankruptcy proceeding provided that such appeal is based on ‘genuine and arguable grounds’.[102]

[100]See Deputy Commissioner of Taxation v Cumins (2008) 70 ATR 855, 859 [14] (Gilmour J) (Cumins).

[101]Cumins (2008) 70 ATR 855, 859 [15] (Gilmour J).

[102]Cumins (2008) 70 ATR 855, 859 [16] (Gilmour J) citing Ahern (1987) 76 ALR 137, 148 and Bayne v Baillieu (1907) 5 CLR 64; see also Trade World (2006) 64 ATR 316, 323 [24].

The defendant referred to the plaintiff’s argument that the principle at [64(c)] breaks any causal connection between this Court staying judgment and the defendant’s loss of his rights under pt IVC of the TAA if a sequestration order were made and therefore ‘…this is not the forum for raising that particular issue as a matter of discretion.’[103] The defendant pointed out that substantially the same argument was made and rejected in Denlay.[104]The reasoning in Denlay was expressed by Chesterman JA of the Queensland Court of Appeal as follows:[105]

It seeks to deprive the Supreme Court altogether of its power to stay execution in appropriate cases. The effect of the submission is that only a Federal judicial officer can stand between a judgment debtor indebted to a Deputy Commissioner, and bankruptcy. But the Supreme Court’s power to stay such judgments is undoubted. While the power should be exercised “sparingly” or “with great caution” it is a power that can be exercised in appropriate circumstances. It is not to be surrendered.

[103]Transcript 51.9–14, 53.14–17.

[104](2010) 80 ATR 109, 120 [47]–[48] (Chesterman JA), [1] (McMurdo P concurring) and [2] (Muir JA concurring).

[105]Denlay (2010) 80 ATR 109, 120 [48].

The defendant submitted that this reasoning should be adopted here. The matter raised by the plaintiff has no real weight and the submission ought to be rejected.

The defendant’s inability to prosecute proceedings under pt IVC of the TAA would be a consequence of him being made a bankrupt. The possibility of that consequence, and its practical effect, is relevant to this Court’s discretion to stay execution of any judgment given. Although the possibility of bankruptcy is not itself extreme personal hardship,[106] the consequences flowing from that possibility are relevant. This follows given, as stated in Denlay, that:
[106]Deputy Commissioner of Taxation v Ackers (1989) 89 ATC 4725, 4727 (Nathan J).

(a) hardship is a question of fact;[107]

(b) if a consequence of bankruptcy is the loss of property and consequent inability to prosecute an appeal, then it is ‘preposterous’ to say that this consequence is not an instance of extreme personal hardship;[108] and

(c) it is not easy to imagine any greater hardship.[109]

[107]Denlay (2010) 80 ATR 109, 118 [30] (Chesterman JA), [1] (McMurdo P concurring) and [2] (Muir JA concurring). The contrary view, expressed in Ho (1996) 32 ATR 269, that both bankruptcy itself and its natural consequences are irrelevant, was expressly rejected.

[108](2010) 80 ATR 109, 120–1 [50] (Chesterman JA), [1] (McMurdo P concurring) and [2] (Muir JA concurring).

[109]Ibid.

The defendant submitted that it must be the case that the inability to prosecute an appeal because the effect of bankruptcy is to remove a person’s standing to bring that appeal also must be extreme personal hardship. It would be incongruous if a loss of ability to prosecute an appeal was extreme personal hardship due to practical inabilities (e.g. an inability to fund an appeal) but was not where the inability arose through legal hardship (e.g. through lack of standing because of being made a bankrupt).

Consideration

Under r 66.16 of the Rules and the inherent jurisdiction, the Court has a discretion to stay execution of a judgment or order. It is required to take into account all the circumstances of the case and is not bound by decisions on other sets of facts.[110] The starting point in relation to the Court's discretion is that a party who obtains a judgment is entitled to have it enforced without delay.[111] The circumstances justifying a stay are those which go to the enforcement of the judgment and not to its validity or correctness.[112] Stays under r 66.16 and equivalent provisions have been granted in situations such as those in which determinations of related[113] or third party proceedings[114] were pending.[115]
[110]Joskovitz v Bonnick [1964] VR 654, 656 (Herring CJ); Sami v Roads Corporation [2009] VSCA 44.
[111]State Bank of Victoria v Parry [1989] WAR 240, 244 (Malcolm CJ); Re Middle Harbour Investments Ltd (In Liq) (Unreported, Supreme Court of New South Wales, Court of Appeal, Mahoney JA, 15 December 1976) 2.
[112]TC Trustees Ltd v JS Darwen(Successors) Ltd [1969] 2 QB 295; State Bank of Victoria v Parry [1989] WAR 240, 244 (Malcolm CJ); Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653; Reading Entertainment Australia Pty Ltd v Burstone Victoria Pty Ltd (No 2) [2005] VSC 137; Re S & D International Pty Ltd (in liq) (No 6) [2011] VSC 119; Sami v Roads Corporation [2009] VSCA 44, [25].
[113]Reading Entertainment Australia Pty Ltd v Burstone Victoria Pty Ltd (No 2) [2005] VSC 137.
[114]See State Bank of Victoria v Parry [1989] WAR 240.
[115]Sami v Roads Corporation [2009] VSCA 44, [26].

The principles applied by Kennedy J in Arico were derived from the decision of the Full Federal Court in Southgate, which in turn referred to principles and factors distilled by the primary Judge, Kenny J, from many earlier decisions.[116] Justice Kennedy introduced those principles (or factors in some instances) with some pertinent remarks, as follows:

The discretion to grant a stay of the execution of a judgment debt based upon a taxation assessment involves an open-ended discretion and it is not possible to work out in advance all possible bases for the exercise of such discretion. Nevertheless, the following general principles have been articulated by the Full Court of the Federal Court in [Southgate]…

[116]Especially the decision of French J (as he then was) in Snow v Deputy Commissioner of Taxation (WA) (1987) 14 FCR 119 and the decisions in Trade World (2006) 64 ATR 316, Broadbeach (2008) 237 CLR 473, and Deputy Commissioner of Taxation (NSW) v Mackey (1982) 64 FLR 432.

Those principles are:[117]
.[117] (2013) 211 FCR 274, 282–3 [30].

(a) The power to grant a stay should be exercised sparingly and the taxpayer bears the onus of persuading the court that a stay ought to be granted in the particular circumstances.

(b) Great weight must be given to the clear legislative policy manifested in provisions such as ss 14ZZM and 14ZZR of the TAA which give priority to the recovery of taxation revenue notwithstanding that a taxpayer has a pt IVC proceeding on foot. The Commissioner is placed by the legislation in a position of special advantage and is generally free to pursue recovery proceedings despite the pendency of pt IVC proceedings.

(c) The merits of pending pt IVC proceedings may be a relevant consideration to be taken into account in the exercise of the discretion, but the court should not attempt to determine the merits unless it has sufficient material before it to do so and it should avoid speculation.

(d) In cases where a judge is unable to form even a tentative view of the strength of pt IVC proceedings, it is unlikely that the judge’s discretion in refusing a stay will miscarry by reason only of the judge being unable on the material before him or her to reach a view as to the taxpayer’s prospects of success in having the assessment overturned.

(e) It is too narrow a view of the discretion to grant a stay of proceedings or execution merely because pt IVC proceedings are pending, or because on review of those proceedings there appears to be an arguable case or complex questions to be determined by the AAT or the court.

(f) That is not to say, however, that the outcome of pt IVC proceedings has to be certain in the sense that they are bound to succeed or fail. That puts the bar too high.

(g) In cases where the court considers that it is in a position to assess the merits of pending pt IVC proceedings and that it is appropriate to do so, the weight to be attached to those merits will vary according to the relative strength of the merits. But the taxpayer needs to have more than merely an arguable case.

(h) Similarly, more weight would be given to the merits factor if the case is one where the Commissioner has abused his position or it is clear that the Commissioner is endeavouring to collect tax in defiance of a decision of the High Court or other superior court which is precisely in point.

(i) Due acknowledgment should be given to the asperity with which provisions such as ss 14ZZM and 14ZZR may operate, but in appropriate circumstances a court might consider that a stay is warranted in cases of extreme hardship to a taxpayer, noting however that:

(xv) the mere obligation to pay income tax of itself does not impose extreme hardship; and

(xvi) the possibility that the taxpayer may be bankrupted is generally not of itself an extreme hardship, however, different considerations may arise if, for example, it is demonstrated that the execution of a judgment debt would deprive the taxpayer of the financial resources needed to prosecute extant pt IVC proceedings.

(j) Irrespective of the merits of pending pt IVC proceedings, a stay will not usually be granted where the taxpayer is party to a contrivance to avoid liability to pay the tax.

(k) Other considerations may need to be taken into account in determining whether to exercise the discretion in a particular case, such as any conduct on the part of the taxpayer or the Commissioner which impacts upon the efficient and expeditious conduct of pt IVC proceedings.

In this case it is important to emphasise that it is the defendant who bears the burden of satisfying the Court that the stay should be granted. The authorities make clear that the circumstances that warrant a stay depend very much on the facts of each case and should be exercised with caution and only where special circumstances exist.[118] In this case, the defendant’s argument focused on the extreme personal hardship that would follow from bankruptcy and the loss of his ability to contest the assessments under pt IVC of the TAA. The argument as to the basis upon which that depends is now not relevant as the plaintiff concedes that he will lose the ability, personally, to apply under pt IVC of the TAA to review or appeal any objection decision of the plaintiff. The plaintiff submitted, and it is evident from the evidence advanced by the defendant, that there is relevant and important evidence that is missing.
[118]See, eg, Deputy Commissioner of Taxation (NSW) v Mackey (1982) 45 ALR 284, 289; Denlay (2010) 80 ATR 109, 115 [22].

The defendant produced no specific evidence as to the merits of any objection to the assessments beyond the material in the plaintiff’s position paper and the material referred to in his affidavit (above at [27]). Since the hearing the defendant has lodged his objection and provided a copy to the Court. It is appropriate to take it into account (without hearing further from the plaintiff) because it does not significantly advance the prospects of the objection or any subsequent review or appeal being successful in two important respects. First, in relation to the properties registered in his name and second in respect of the basis on which he explains the ‘unexplained deposits’ in his bank accounts.

As to the first matter, there is no mention that the properties acquired by the defendant and referred to in the plaintiff’s position paper are not beneficially held by him, as was suggested by Counsel for the defendant in argument (see above at [36(c)(iv)]). The assessments were based in part on the betterment of the defendants financial position and the purchase of the properties was important to that assessment.

This is relevant to the evidence as to the defendant’s impecuniosity – that he is a pensioner and will never work again – and the consequent hardship that is suggested he will suffer should judgment not be stayed pending his objection and any review or appeal thereafter. The searches undertaken by the plaintiff and referred to in the position paper show that the defendant is the registered proprietor of properties at 11 Louise Baille Avenue, Narre Warren South, 1/11, 2/11 and 3/11 Parkwood Court, Deer Park. There is no evidence of the value of these properties, although there is evidence of the purchase prices in 2009 (Narre Warren) and 2013 (Deer Park) amounted to over $1.5 million. It is the defendant’s burden to establish that these properties should not be considered relevant to his financial position, and thus any possible hardship he may suffer in consequence of judgment being entered and enforced. He has not done so.

As to the second matter, in his objection he maintains that the notices of assessment are incorrect or excessive (pursuant to s 14ZZK of the TAA) and in support purports to explain the deposits in his bank accounts as:

(a) partly wages paid by identified companies where those companies deducted pay as you go (PAYG) instalments of tax; the records are said to be with the companies which are all in external administration, but the plaintiff should have the records;

(b) partly by dividends paid by unidentified companies;

(c) partly by loans and gifts from his parents, his domestic partner and unidentified friends;

(d) partly by rent received from letting property; and

(e) partly by deposits not applied for his benefit whilst he was in prison.

Despite the tabulation of the defendant’s bank records that had been annexed to the plaintiff’s position paper being reproduced in a table annexed to the objection and annotated (mostly) with the description of whether the deposit was wages, dividends, rent, loans or gifts, any fair reading of the objection leads to the preliminary conclusion that the grounds are limited to a reduction of the quantum of the assessments and even then the basis is very thin. The defendant’s ‘unhealthy lifestyle’ evidently included not keeping any records.

The material put before the Court by the defendant is insufficient to enable any conclusion about defendant being in a position of extreme hardship if the Court proceeds to enter judgment and that judgment is enforced against him. It is not accepted by the plaintiff that his failure or refusal to agree to a stay of execution means that he will inevitably seek to bankrupt the defendant. Having regard to the defendant’s apparent assets, and despite his claims that he is impecunious, it is at present quite unclear whether bankruptcy is the inevitable consequence of enforcement of the judgment. He has, apparently, four properties registered in his name. They cost over $1.5 million when bought between 2009 and 2013. There is no evidence to suggest these properties are not available to meet his tax liabilities.

One of the properties (the Narre Warren property) owned by the defendant seems to have been his place of living, at least at some time. It was near there that he went for his evening walk and was shot in the back with a shotgun. It is given as his address in one of the medical certificates he produces. However, in his affidavit the defendant gives as his address another property (41-43 Bakers Road, Dandenong) and gives no evidence that he will or might lose his home either to avoid bankruptcy or in the event he is made bankrupt.

The plaintiff submitted that the possibility of bankruptcy was not sufficient to justify the stay in this Court and that this Court is not the appropriate forum for raising the argument that bankruptcy would result in extreme hardship to the defendant because it would deprive him of his right of review or appeal under pt IVC of the TAA. As the statement of principles set out above shows, the possibility that the taxpayer may be bankrupted is generally not of itself an extreme hardship. The defendant relies, however, on the decision of the Queensland Court of Appeal in Denlay and, in particular on the observations of Chesterman JA (with whom McMurdo P and Muir JA agreed) in relation to the proposition advanced in that case, as in this, that the court exercising jurisdiction in bankruptcy was the proper forum to determine whether the judgment should result in bankruptcy. His Honour responded, appropriately, that it seeks to deprive the Supreme Court altogether of its power to stay execution in appropriate cases, an undoubted power.

These propositions cannot be doubted. There is no suggestion, as I understand the argument before me, of depriving this Court of the power to grant a stay of execution. It is rather a matter of when, and on the basis of what materials, this Court or the court exercising jurisdiction in bankruptcy acts. Here, the evidence in support of the application for a stay is not sufficient, in my view, to warrant any stay of execution. In the case before the Court of Appeal in Denlay there was sufficient material.[119] Given that the evidence and circumstances in Denlay at first instance supported a stay (then and there), it was not appropriate to leave it to the Federal Court, there being an extant appeal to that Court under pt IVC of the TAA. In Denlay, there was no error of the kind needed to appeal the discretionary decision of the primary judge to grant a stay of execution of the judgment given in that case.
[119]See the summary at (2010) 80 ATR 109, 121 [52].

In this case, it has not been demonstrated that the execution of the judgment debt would deprive the taxpayer of the financial resources needed to prosecute his objection or any pt IVC proceedings, to the extent that they have genuine merit. That they have genuine merit has also not been demonstrated by the defendant, and is not plain from the objection lodged.

When these factually based considerations are considered in light of the legislative policy which place the plaintiff in a position of special advantage, which is, to use a neat aphorism, that the taxpayer should ‘pay now and argue later’,[120] and due weight is given to that legislative position, the result must be, in my opinion, that no stay of execution is justified.
[120]Akers (1989) 89 ATC 4725, 4727 (Nathan J); Denlay (2010) 80 ATR 109, 119 [39].

Conclusion

For the foregoing reasons, there should be judgment for the plaintiff in the amount of $1,866,410.59, plus any further GIC that has accrued pursuant to pt IIA of the TAA since 19 February 2018 until the date of judgment. There should be no adjournment nor any stay of execution of the judgment. In addition, the defendant should pay the plaintiff’s costs. I will hear the parties, if necessary, as to the form and quantum of the judgment, or the judgment can be dealt with on the papers without further appearance by the plaintiff producing appropriate certificates as to the amount due by the defendant under the assessments.

[2018] VSC 641

26 October 2018