Deputy Commissioner of Taxation v Porta
[2017] FCCA 1732
•12 July 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DEPUTY COMMISSIONER OF TAXATION v PORTA | [2017] FCCA 1732 |
| Catchwords: BANKRUPTCY – Creditor’s petition – after hearing adjourned part-heard respondent debtor failed to file foreshadowed amended notice of grounds of opposition or further evidence – no appearance by respondent debtor at resumed hearing – where respondent debtor on notice of hearing date – failure to establish other sufficient cause in s.52(2)(b) of the Bankruptcy Act 1966 (Cth) – sequestration order made. |
| Legislation: Bankruptcy Act 1966 (Cth), s.52 Commonwealth of Australia Constitution Act (Cth), s.51(xvii), (xxxi) |
| Cases cited: Attorney-General (Cth) v Schmidt (1961) 105 CLR 361; [1961] HCA 21 Australian Competition and Consumer Commission (ACCC) v CG Berbartis Holdings Pty Ltd (1999) 95 FCR 292; [1999] FCA 1151 Cain v Whyte [1933] HCA 6; (1933) 48 CLR 639 Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8 Eykamp v Deputy Commissioner of Taxation [2010] FCA 797 |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | MARCO PORTA |
| File Number: | SYG 942 of 2016 |
| Judgment of: | Judge Barnes |
| Hearing dates: | 22 March 2017, 19 April 2017, and 12 July 2017 |
| Delivered at: | Sydney |
| Delivered on: | 12 July 2017 |
REPRESENTATION
| Solicitors for the Applicant: | Hunt & Hunt Lawyers |
| Respondent: | Self-represented on 22 March 2017 Mr Horne on 19 April 2017 |
ORDERS
The estate of Marco Porta be sequestrated under the Bankruptcy Act 1966 (Cth).
Order 5 made on 22 March 2017 and order 7 made on 19 April 2017 be vacated.
The Applicant Creditor’s costs and disbursements fixed in the sum of $13,516.55 be paid from the estate of the Respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
Under the Bankruptcy Regulations 1996 (Cth) the Applicant give a copy of this sequestration order to the Official Receiver in Sydney within 2 days.
THE COURT NOTES THAT
The date of the act of bankruptcy is 1 March 2016.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 942 of 2016
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| MARCO PORTA |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
On 19 April 2016, the Deputy Commissioner of Taxation (the petitioning creditor) presented a creditor’s petition seeking the making of a sequestration order against the estate of Marco Porta (the respondent debtor). The petition relied on a debt of $210,261.06 consisting of an amount due to the petitioning creditor under a final judgment of the Family Court of Australia of 26 February 2015 together with interest thereon.
The proceedings in this court have a somewhat protracted history. The petition initially came before a registrar on 24 May 2016. Substituted service was ordered on 16 November 2016 and, as attested to in affidavits relied on by the petitioning creditor, the petition and accompanying documents were served in compliance with the orders for substituted service.
Although the respondent debtor did not appear on the next court date, the matter was adjourned and on 23 January 2017, at the respondent debtor’s request, allocated to a judge’s docket. The respondent debtor filed a notice of grounds of opposition and a supporting affidavit on 23 January 2017. The only ground relied on by Mr Porta in the notice stating grounds of opposition was that there was other sufficient cause why the Court should decline to make a sequestration order.
The matter first came before me on 22 February 2017. The parties were given the opportunity to file further evidence. The matter was listed for hearing on 22 March 2017. The orders noted that if there was no appearance by the respondent debtor on 22 March 2017 the hearing may proceed in his absence.
The hearing commenced on 22 March 2017. The solicitor for the petitioning creditor read the usual affidavits and made detailed submissions, both written and oral, including addressing the matters for consideration under s.52(1) of the Bankruptcy Act 1966 (Cth) (the Act) and also the s.52(2)(b) ground in the notice of opposition.
In submissions, Mr Porta did not suggest that the Court should not be satisfied with proof of the matters referred to in s.52(1), although he claimed he had paid part of the debt that formed the basis for the bankruptcy notice and petition.
It emerged during the hearing, having regard to what Mr Porta said and his affidavit evidence (much of which was in the nature of submissions and was so treated), that he may have intended to rely on an argument that the Court should be satisfied that he was able to pay his debts within s.52(2)(a) of the Act as well as his s.52(2)(b) contention. He also made a rather opaque claim that he had made incorrect assumptions about the extent of the evidence as to his dealings with the ATO that would be before the Court.
In these circumstances, notwithstanding that the matter was part-heard, the hearing was adjourned until 19 April 2017. Orders were made for Mr Porta to file and serve any further affidavit evidence and written submissions to clarify the basis of his opposition to the petition (see Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8 at [40]-[45] and [52]) and to pay fixed costs thrown away by reason of the adjournment. Mr Porta filed a further affidavit referring to various summaries (which, however, were not exhibited to the affidavit) and to the existence of mostly unspecified documents in relation to which he sought an order under s.50 of the Evidence Act 1995 (Cth) (the Evidence Act).
However, when the resumed hearing commenced on 19 April 2017, there was an appearance by a Mr Horne for the respondent debtor. He told the Court that he had taken instructions that morning to appear and sought an adjournment for four to six weeks to enable Mr Porta to prepare additional material. He had not yet filed a notice of appearance.
With considerable hesitation, I acceded to the requested further adjournment on the basis that Mr Porta file and serve an amended notice stating grounds of opposition by 28 April 2017 and further affidavit evidence by 7 June 2017 and pay further costs of the Applicant. Such costs were to be paid forthwith. The matter was adjourned for hearing until today, 12 July 2017. In other words, Mr Porta has been on notice since 19 April 2017 that the adjourned date for the hearing would be today.
Mr Horne did not file any notice of appearance or any other documents. Nor did Mr Porta file an amended notice stating grounds of opposition by 28 April 2017. Mr Porta did not pay the costs of the petitioning creditor. The petitioning creditor exercised liberty to apply. The matter came before me on 1 June 2017. Mr Porta appeared (by telephone link).
After some discussion I gave Mr Porta a further extension of time, until 7 June 2017, to file an amended notice stating grounds of opposition as well as any further affidavits. I also ordered that if this order was not complied with, no further documents (other than written submissions) were to be filed or attempted to be filed by Mr Porta without leave of the Court having been obtained. Mr Porta was reminded that the hearing date was 12 July 2017 and of the need to put any evidence before the Court by way of affidavit.
Mr Porta did file a further affidavit on 6 June 2017 as to part-payment of the judgment debt, but did not file any amended notice stating grounds of opposition. He did not file foreshadowed written submissions.
There was no appearance by Mr Porta today at 10:15am, the time listed for the hearing. I allowed a further 15 minutes in circumstances where on one previous occasion I had, at Mr Porta’s request, listed the hearing to commence at 10:30am rather than 10:15am. It is now 11:05am. There has been no appearance by or on behalf of Mr Porta. My associate contacted the Registry after 10:15am. There is no indication that Mr Porta contacted the Registry to explain his absence.
In these circumstances, the petitioning creditor seeks to proceed on the petition in Mr Porta’s absence. I consider it is appropriate to do so. I am satisfied that Mr Porta is on notice of the adjourned hearing date and time and of the need to attend (and see r.13.03C(1)(e) of the Federal Circuit Court Rules 2001 (Cth)).
The petitioning creditor has filed the necessary affidavits of final search and final debt in addition to the other usual affidavits in relation to the matters in s.52(1) of the Act.
On the evidence before me, I am satisfied with the proof of the matters stated in the creditor’s petition. These matters were addressed on 22 March 2017 and today by the petitioning creditor. Mr Porta raised no issue in this respect.
I am satisfied with the service of the petition in accordance with the orders for substituted service. It is quite clear it was brought to the attention of Mr Porta. He did not dispute this.
I am satisfied that the debt on which the petitioning creditor relies is still owing, albeit that there has been part-payment. It is notable that the affidavit of final debt sworn by David Johnston on 11 July 2017 is to the effect that, as at yesterday, the sum of $234,016.46 remained due and owing by the respondent debtor to the petitioning creditor, taking into account the judgment debt of over $210,000 relied on in the bankruptcy notice, interest which continues to accrue together with ongoing superannuation guarantee charge liabilities, as well as payments and credits.
Mr Porta operates a restaurant on the Central Coast. He apparently continues to trade, despite the fact that his total indebtedness to the petitioning creditor continues to exceed the amount of the judgment debt and interest which formed the basis for the bankruptcy notice (notwithstanding that he has made some voluntary payments). I have borne in mind (despite Mr Porta’s absence) that he calculated that as at 6 June 2017 he had repaid over $80,000 of the judgment debt. The petitioning creditor’s calculation (in an affidavit of Kim Trahair of 27 June 2017) was that $77,266 had been paid since the Family Court orders, of which only $45,210 had been allocated to the judgment debt (with the balance allocated to Mr Porta’s superannuation guarantee charge liabilities and unpaid BAS). Mr Porta also has outstanding tax returns for the financial years ending 30 June 2013 on. In addition, Mr Porta has accrued running balance account liabilities to the Deputy Commission of Taxation of over $64,000.
While there has been some voluntary part-payment to the ATO on the part of Mr Porta (at least since January this year), even if he had paid the total amount he calculated and even if all of the amount paid had been allocated to the judgment debt, there would still be a significant balance of the judgment debt owing to the Deputy Commissioner of Taxation in circumstances where Mr Porta’s overall liability to the ATO continues to exceed the amount of the judgment debt. Hence I am satisfied with proof of the matters in s.52(1) of the Act.
In relation to s.52(2) of the Act, as indicated, Mr Porta did not file an amended notice stating grounds of opposition despite his foreshadowed potential reliance on the ground in s.52(2)(a).
Nonetheless, I have turned my mind to that question, despite the fact that Mr Porta has not appeared. However, even if Mr Porta were to rely on all his affidavit evidence, it would not be such as to satisfy me that he is able to pay his debts within s.52(2)(a) of the Act.
I note first that this is not an appropriate case to make an order under s.50 of the Evidence Act as Mr Porta sought in his affidavit sworn on 5 April 2017. If Mr Porta wished to rely on s.52(2)(a) he would bear the onus. I am not satisfied that the volume or complexity of the documents he might wish to rely on is such as to warrant an order permitting him to adduce evidence in the form of a summary. There is no evidence that the requirements of s.50(2) of the Evidence Act have been met and any proposed “summaries” are not in evidence.
A debtor who is able to pay all the debts he owes within a reasonable period ought not to be subject to a sequestration order. There is authority to suggest that s.52(2)(a) does not necessarily require the debtor to have sufficient cash at hand or available to pay all creditors, provided he or she has other realisable assets (see Sandell v Porter (1966) 115 CLR 666; [1966] HCA 28). I have also borne in mind that recalcitrance is not of itself such as to warrant bankruptcy. However the debtor must establish an ability to pay his or her debts as and when they become due and payable in the “reasonably immediate future” (see Knudsen & Yates; Re Sanders v Sanders [2003] FCA 1079 at [26] and cases cited therein). It is not sufficient for a debtor to establish that he or she has assets exceeding liabilities in value. The debtor must establish that assets are “available to be realised and capable of ready realisation” (Re Sanders at [22]). Mr Porta has not established this or, insofar as it is relevant, that he could raise sufficient money in a realistic time frame to pay all his debts (see Eykamp v Deputy Commissioner of Taxation [2010] FCA 797 at [7]).
More fundamentally, not only did Mr Porter not ultimately rely on s.52(2)(a) as a ground of opposition, but also while he has filed some affidavits, they do not amount to a complete disclosure of his financial situation, such that I am able to form a view as to whether he is able to pay his debts within s.52(2)(a) of the Act. In one affidavit he referred generally to the existence of other creditors (unnamed credit card providers and trade creditors) but there was no quantification of those liabilities. Further, the evidence, such as it is, in relation to his assets is vague in the extreme. In effect, it amounts to a contention that he operates a restaurant that earns money, as it has a good trade. However the evidence does not establish that Mr Porta is or in the reasonably immediate future will be, in a position to pay the ATO in full, let alone to pay all his debts. On the contrary, in the affidavit that Mr Porta filed on 23 January 2017 (and relied on in these proceedings on 22 March 2017), he made a clear statement that he was not able to pay his debt to the ATO in full within a short period of time. He claimed he was willing to pay his debt to the ATO out of his current and future resources “over time” on the basis of a payment plan that was not agreed to by the ATO. Insofar as in his affidavit of 5 April 2017 he suggested he would be able to repay outstanding debts at the rate of $60,000 per year, he seemed to assume (incorrectly) that all that mattered for the purposes of s.52(2)(a) was the judgment debt to the ATO.
It is the case that Mr Porta has made some voluntary payments to the ATO. However on the limited evidence before me, the fact of those payments is not such as to satisfy me that Mr Porta is able to pay all his debts, whatever they may be, either now or in a reasonably short period. I note in that respect that I made an order in April for Mr Porta to pay the petitioning creditor’s costs of $5,500 forthwith. I am told from the bar table that those costs (and the costs ordered on 22 March 2017) have not been paid. That is not supportive of the proposition that Mr Porta is able to pay his debts as they fall due. I am not satisfied that the respondent debtor is able to pay his debts within s.52(2)(a) of the Act.
In his notice stating grounds of opposition, Mr Porta relied on a contention that for other sufficient cause a sequestration order ought not to be made. Again, despite Mr Porta’s failure to appear today, I have considered this issue. It was addressed in helpful written and oral submissions by the petitioning creditor. Mr Porta also made submissions on 22 March 2017 and in “affidavits” in which he complained of the fact that the ATO had refused to enter into a payment arrangement as he proposed. In a sense, he appeared to rely on the refusal of the ATO in support of the proposition that there was other sufficient cause not to make a sequestration order. He also raised “constitutional” arguments, contended that bankruptcy was not “just” and also that, as he stated in his affidavit of 5 April 2017, (errors in original):
…the Commonwealth has no fiscal or monetary reason to require the payment of taxes within a prescribed time, and that while methods for the enforcement of debt, including bankruptcy, are a prerogrative of the government, they have no basis in the argument that the funds are required for the functioning of the government by virtue of of the assumption that the funds are with the utmost necessity required for government expenditure, in the sense that if the funds are not available, the government is impaired in its ability to disburse funds for its purposes.
On this basis he appeared to be of the view that a sequestration order should not be made against him on the application of the Deputy Commissioner of Taxation as he could (eventually) pay his debt to the ATO and that the ATO should not resort to bankruptcy proceedings in relation to his failure to pay taxes.
The oft-cited authority as to what constitutes “other sufficient cause” in s.52(2)(b) of the Act is the decision of the High Court in Cain v Whyte [1933] HCA 6; (1933) 48 CLR 639, adopting the remarks of the judge at first instance as follows (at 646):
… prima facie, on proof of the matters mentioned in [the equivalent of s.52(1) of the Act] 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.
As discussed in McDermott v Wakim [2013] FCCA 1950, once the court is satisfied of the s.52(1) matters, it is only in exceptional circumstances that it will refuse to make a sequestration order or exercise its discretion under s.52(2)(b) of the Act not to make a sequestration order. However the circumstances that may constitute “other sufficient cause” are extremely variable. This is not a case in which there are other proceedings pending, or there is any appeal or posited appeal from the judgment on which the debt that forms the basis for the bankruptcy notice was based.
Insofar as Mr Porta takes issue with the ATO’s refusal to enter into a payment arrangement, it is well established (see McIntosh v Shashoua [1931] HCA 56; (1931) 46 CLR 494 at 505, 508 and 521) that a petitioning creditor is under no obligation to accept tender or payment of a debt. Similarly, the petitioning creditor was under no obligation to accept a payment arrangement in satisfaction of its debt. Insofar as there may have been a suggestion from Mr Porta that the Court should compel the petitioning creditor to enter a payment arrangement, the Court does not have jurisdiction to compel the Deputy Commissioner of Taxation to enter into a payment arrangement. Rather, that is a discretionary matter for the Deputy Commissioner of Taxation pursuant to s.255-15 in Schedule 1 to the Taxation Administration Act 1953 (Cth) (and see Re Noye; Ex parte Deputy Commissioner of Taxation (Cth) (1956) 18 ABC 77).
There was no obligation on the ATO to accept payment under a payment plan or a payment by instalments after an act of bankruptcy had occurred (see McIntosh v Shashoua at 508 and Taylor v Deputy Commissioner of Taxation (1999) 99 ATC 4268; [1999] FCA 195 at [39]). In this case an act of bankruptcy occurred on 1 March 2016 in that the debtor failed to comply with the bankruptcy notice.
There is nothing in the circumstances of this case to suggest that the petitioning creditor’s approach in this respect is unreasonable or otherwise such that the petition involved an abuse of process. I am not satisfied that its failure to accept Mr Porta’s proposal, or to pursue other remedies, constitutes other sufficient cause. Indeed, Mr Porta’s failure to pay the costs which he had been ordered to pay forthwith is such that the ATO could have no confidence that he would make voluntary payments under a payment arrangement, which would, in any event, not result in payment of the debt within a reasonably short period and would not result in payment of Mr Porta’s other debts.
I am not satisfied that the ATO’s refusal to enter a payment arrangement is other sufficient cause in itself or considered as part of all the circumstances.
Insofar as Mr Porta relied on the fact that he had made some payments to the ATO I am not persuaded that part-payment of a debt, in the absence of evidence as to when and how the balance could be paid, amounts to other sufficient cause.
Nor am I prepared to make an order (as was originally sought by Mr Porta) for some sort of arrangement not entailing bankruptcy whereby his debt could, over time, be paid out of his own resources. I note in that respect that he continues to trade and to incur liabilities, has unmet superannuation guarantee charge liabilities and has not filed tax returns for the financial years ending 30 June 2013 to date.
The general contention that bankruptcy is unjust or unfair or founded on the application of unjust principles of law is not made out. Nor is Mr Porta’s suggestion that it is not appropriate for a government authority such as the ATO to pursue a debtor through bankruptcy such as to constitute other sufficient cause.
For the sake of completeness, I note that it appeared that Mr Porta may have intended to raise issues under the Constitution or in respect of its interpretation. Perhaps out of an abundance of caution, in circumstances where Mr Porta did not give notices to the Attorneys-General under s.78B of the Judiciary Act 1903 (Cth), the petitioning creditor gave such notices on 9 March 2017. There was no intervention by any of the Attorneys-General.
The constitutional issues that appeared to be raised by Mr Porta were that the words “peace, order and good government” in s.51 of the Constitution were words of limitation and that, in seeking a sequestration order, the ATO was acting beyond power and/or contrary to s.51 of the Constitution and that the application for a sequestration order was contrary to s.51(xxxi) of the Constitution because in applying for the order the ATO was acting contrary to the “just terms” requirement.
Subsequently, it seemed to be suggested that the Bankruptcy Act in itself was unconstitutional, although, it has to be said, the basis on which that was contended was not entirely clear and as Mr Porta did not appear today such contention was not elaborated upon.
As contended by the petitioning creditor there is insufficient material to warrant any further notice under s.78B of the Judiciary Act. I note in that respect that the mere fact that a party purports to raise a constitutional issue is not in itself such as to establish that such a procedure ought to be followed. As discussed in Australian Competition and Consumer Commission (ACCC) v CG BerbartisHoldings Pty Ltd (1999) 95 FCR 292; [1999] FCA 1151, s.78B does not impose on the Court a duty not to proceed pending the issue of a notice no matter how trivial, unarguable or concluded a constitutional point may be.
The “peace, order and good government” argument is without merit. These words appear in ss.51 and 52 of the Constitution which concern the subject matters and purposes upon which the Commonwealth can enact legislation. The decision-making of a Commonwealth agency is not an issue to which these provisions are directed.
To the extent that Mr Porta intended to take issue with the imposition of laws with respect to a sequestration order on the basis that in applying for a sequestration order the ATO was acting contrary to the “just terms” requirements in s.51(xxxi) in the Constitution, the authority is to the contrary. Section 51(xxxi) does not apply to the imposition of taxation (see Federal Commissioner of Taxation v Clyne (1958) 100 CLR 246; [1958] HCA 10) (or its recovery) or to laws with respect to sequestration of the property of a bankrupt (Attorney-General (Cth) v Schmidt (1961) 105 CLR 361; [1961] HCA 21). Mr Porta’s disagreement with Schmidt and the other “issues” he raised in written submissions are not such as to warrant the issue of further notices under s.78B of the Judiciary Act. Nor do any of these matters, either alone or in conjunction with all the other circumstances, satisfy me that there is other sufficient cause within s.52(2)(b) of the Act.
A sequestration order of the estate of a bankrupt (and transfer of property to a trustee in bankruptcy) is part of the very nature of bankruptcy which is expressly recognised in the Constitution (see s.51(xvii)). It would be incongruous to require “just terms” with respect to property taken for the purposes of bankruptcy (see Mutual Pools & Staff Pty Ltd v Commonwealth [1994] HCA 9; (1994) 179 CLR 155 at 170 per Mason CJ and Theophanous v Commonwealth of Australia [2006] HCA 18; (2006) 225 CLR 101 at 124-5).
Insofar as Mr Porta may have sought to challenge the power to enact the Bankruptcy Act, again, the words “peace, order and good government” are not words of limitation (see Union SteamshipCompany of Australia Pty Ltd v King (1988) 166 CLR 1; [1988] HCA 55). They do not confer jurisdiction on courts to strike down legislation on the grounds that, in the opinion of the Court, the legislation does not promote or secure peace, order and good government (ibid at [10]).
I mention these matters out of an abundance of caution to indicate that in circumstances where Mr Porta appeared on 22 March 2017, notwithstanding his absence today, the matters that he raised have been taken into account.
In all the circumstances, I am satisfied with proof of the matters in s.52(1) of the Bankruptcy Act. I am not satisfied by Mr Porta of the matters in either s.52(2)(a) or s.52(2)(b) of the Act. I am satisfied that Mr Porta committed the act of bankruptcy alleged in the creditor’s petition. It is appropriate to make a sequestration order against his estate.
I am also of the view that it is appropriate to make the costs order sought by the petitioning creditor, who provided the Court with a statement of costs and disbursements incurred, including the amounts the subject of the costs orders made on 22 March 2017 and 19 April 2017. As submitted, those orders should be vacated and replaced by an order including all of the costs and disbursements.
I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of Judge Barnes
Associate:
Date: 26 July 2017
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