Deputy Commissioner of Taxation v Sedrak

[2009] FMCA 411

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DEPUTY COMMISSIONER OF TAXATION v SEDRAK [2009] FMCA 411

BANKRUPTCY – Application to extend the time for expiration of a creditor’s petition after it lapsed – power and discretionary factors.

PRACTICE & PROCEDURE – Slip rule – application of Federal Court Rules.

Bankruptcy Act 1966 (Cth), s.52
Federal Magistrates Act 1999 (Cth), s.43
Federal Court Rules, O.35, r.7.3
Federal Magistrates Court Amendment Rules 2007 (No.1)
Federal Magistrates Court Rules, rr.1.05, 16.05
Federal Magistrates Court (Bankruptcy) Rules, r.1.03

Boral Resources (Qld) Pty Ltd v Griffiths (No.2) [2005] FMCA 1340
Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd (1995) 61 FCR 385
Griffiths v Boral Resources (Qld) Pty Ltd (2006) 154 FCR 554
ReHowell; Ex parte Commissioner of Taxation (1996) 70 FCR 261
Re Young; Ex parte Smith (1985) 5 FCR 204
Roskell v Snelgrove (2008) 246 ALR 175

Applicant: DEPUTY COMMISSIONER OF TAXATION

Respondent: SAM SEDRAK

File Number: SYG 514 of 2008

Judgment of: Barnes FM

Hearing date: 21 April 2009

Delivered at: Sydney

Delivered on: 8 May 2009

REPRESENTATION

Counsel for the Applicant: Ms S Foda

Solicitors for the Applicant: Australian Taxation Office, Legal Services Branch

Solicitors for the Respondent: Beazley Singleton Lawyers

ORDERS

1. That there be included in the orders made by a Registrar of this Court in this matter on 27 February 2009 an order that the period at the expiration of which the creditor’s petition will lapse be the period of 24 months commencing on the date of presentation of the petition. 

2. That costs be reserved. 

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 514 of 2008

DEPUTY COMMISSIONER OF TAXATION

Applicant

And

SAM SEDRAK

Respondent

REASONS FOR JUDGMENT

1. On 4 March 2008 the Deputy Commissioner of Taxation (the DCT) filed and presented a creditor's petition seeking that a sequestration order be made against the estate of the respondent, Sam Sedrak.  On 2 April 2008 the Court granted leave to the DCT to file an amended creditor's petition.  An amended petition was filed and presented on 15 April 2008.  Thereafter the matter came before a Registrar of this Court on 21 May 2008, 4 June 2008, 24 June 2008, 20 August 2008, 16 September 2008, 14 October 2008, 25 November 2008, 27 February 2009, 17 March 2009 and 21 April 2009.  It came before me for hearing on 21 April 2009.

2. The DCT filed an application on 17 April 2009 seeking an order pursuant to O.35 r.7 of the Federal Court Rules that the period at the expiration of which the petition would lapse be the period of 24 months commencing on the date of presentation of the petition. 

3. Under s.52(4) of the Bankruptcy Act 1966 (Cth) a creditor's petition lapses at the expiration of a period of 12 months commencing on the date of presentation of the petition unless the Court makes an order under s.52(5) in relation to the petition. Section 52(5) is as follows:

   The Court may, at any time before the expiration of the period of 12 months commencing on the date of presentation of a creditor’s petition, if it considers it just and equitable to do so, upon such terms and conditions as it thinks fit, order that the period at the expiration of which the petition will lapse be such period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order.

4. In this case the DCT did not seek an order pursuant to s.52(5) prior to expiration of the creditor's petition on 3 March 2009. The DCT now seeks an order nunc pro tunc on the basis that the failure to seek such an order was due to an accidental slip or omission.  It was contended that the Court had power to make such an order and should do so under O.35 r.7(3) of Federal Court Rules which provides that:

   A clerical mistake in a judgment or order, or an error arising in a judgment order from an accidental slip or omission, may at any time be corrected by the Court. 

5. The DCT relies on an affidavit affirmed by Irene Chan filed on 17 April 2009, an employee who has care and conduct of the matter.  Ms Chan, who was not required for cross-examination, attested that when the matter came before Registrar Tesoriero on 27 February 2009 she appeared for the DCT and Mr Pollack appeared for Mr Sedrak.  The DCT sought an adjournment to allow time for an amended notice of assessment of income tax to be issued to Mr Sedrak to reflect a credit for the financial year ending 30 June 2005.  It was proposed that the matter be referred to a Federal Magistrate for hearing on 17 March 2009.

6. Short minutes of order (including orders for both parties to file affidavit evidence) were signed by the legal representative for the parties.  The Registrar made consent orders to this effect. 

7. Ms Chan's evidence is that on 27 February 2009 the Deputy Commissioner of Taxation had, “inadvertently omitted to seek an order pursuant to section 52(2) (sic) Bankruptcy Act 1966 to seek an extension of the life of the petition prior to its expiration on 3 March 2009.”

8. The respondent opposes the orders sought and relies on an affidavit of Phillip John Pollack, his solicitor, sworn on 20 April 2009 and an affidavit of Yousry Ghaly, his accountant and taxation advisor, sworn on 15 September 2008.

9. The first issue that arises for consideration is whether O.35 r.7(3) of the Federal Court Rules is applicable. The Federal Magistrates Court (Bankruptcy) Rules govern bankruptcy proceedings in this Court. Rule 1.03(2) provides that the other rules of the Court apply to a proceeding to which the Bankruptcy Act applies to the extent that they are relevant and not inconsistent with the FMC Bankruptcy Rules. This is such a proceeding.

10. Rule 1.05 of the Federal Magistrates Court Rules is as follows:

    (1)     It is intended that the practice and procedure of the Federal Magistrates Court be governed principally by these Rules.

    (2)     However, if in a particular case the Rules are insufficient or inappropriate, the Court may apply the Federal Court Rules or the Family Law Rules 2004 or the Family Law Rules 1984, in whole or in part and modified or dispensed with, as necessary.

    …

11. In addition, r.1.05(3)(b) is to the effect that, without limiting subrule 2, the provisions of the Federal Court Rules set out in Part 2 of Schedule 3 apply, with necessary changes, to general federal law proceedings. Part 2 of Schedule 3 lists specific Federal Court Rules. In Roskell v Snelgrove (2008) 246 ALR 175 Lindgren J (at [41]) found that the power conferred by Order 35 r.7(3) of the Federal Court Rules was available to this Court under r.1.05(3)(b).

12. However, pursuant to the Federal Magistrates Court Amendment Rules 2007 (No.1) (Cth), on 27 June 2007 the reference to Order 35 in Part 2 of Schedule 3 was replaced with a reference to “Order 35 (except r.7)”.  Hence, in contrast to the position at the time of the events considered by Lindgren J in Roskell v Snellgrove, the provisions of O.35 r.7(3) are not automatically applicable in this Court by virtue of r.1.05(3) of the Federal Magistrates Court Rules.

13. Under r.1.05(2) of the Federal Magistrates Court Rules if in a particular case the Federal Magistrates Court Rules are insufficient, the Court may apply the Federal Court Rules. While the Federal Magistrates Court Rules contain (in r.16.05) provisions that are the equivalent of O.35 r.7(1), (2) and (4) of the Federal Court Rules (dealing with varying or setting aside a judgment or order before it has been entered), the rules of this Court do not contain a provision equivalent to O.35 r.7. I am of the view that O.35 r.7(3) should be applied in this case. The application of O.35 r.7(3) of the Federal Court Rules in bankruptcy proceedings in this Court would enable harmony in this respect to be maintained between the superior court, the Federal Court of Australia and this Court. Both Courts exercise jurisdiction in bankruptcy and have adopted harmonised bankruptcy rules.

14. In Boral Resources (Qld) Pty Ltd v Griffiths (No.2) [2005] FMCA 1340 Baumann FM concluded that r.1.05(2) of the Federal Magistrates Court Rules and s.43(2)(b) of the Federal Magistrates Court Act 1999 enabled O.35 r.7.3 of the Federal Court Rules to be applied in this Court.

15. Section 43 of the Federal Magistrates Act1999 relevantly provides:

    (1)     The practice and procedure of the Federal Magistrates Court is to be in accordance with Rules of Court made under this Act. However, this subsection is subject to any provision made by or under this or any other Act with respect to practice and procedure.

    (2)     In so far as the provisions applicable in accordance with subsection (1) are insufficient:

    (a)     the Rules of Court made under the Family Law Acthttp:// 1975 apply, with necessary modifications, so far as they are capable of application and subject to any directions of the Federal Magistrates Court or a Federal Magistrate, to the practice and procedure of the Federal Magistrates Court in relation to the jurisdiction of the Federal Magistrates Court under:

    (i)     the Family Law Acthttp:// 1975; or

    (ii)     the Child Support (Assessment) Act 1989; or

    (iii)    the Child Support (Registration and Collection) Act 1988; and

    (b)     the Rules of Court made under the Federal Court of Australia Act 1976 apply, with necessary modifications, so far as they are capable of application and subject to any directions of the Federal Magistrates Court or a Federal Magistrate, to the practice and procedure of the Federal Magistrates Court in relation to the jurisdiction of the Federal Magistrates Court under laws of the Commonwealth other than:

    (i)     the Family Law Acthttp:// 1975; or

    (ii)     the Child Support (Assessment) Act 1989; or

    (iii)    the Child Support (Registration and Collection) Act 1988; and

    (3)     In this section:

    "practice and procedure" includes all matters in relation to which Rules of Court may be made under this Act.

16. On appeal, in Griffiths v Boral Resources (Qld) Pty Ltd (2006) 154 FCR 554, the Full Court of the Federal Court suggested at [14] that O.35 r.7 of the Federal Court Rules reflects “the inherent power of a superior court of record to correct an error in a decree or order.”  Their Honours referred to authority which indicated that inferior courts have no such power and suggested that if there was no such inherent power there may be doubt “as to whether, in the absence of an express statutory authority, an inferior court may acquire it by making a rule of court to that effect” (at [15]).Their Honours expressed the view that in the absence of inherent power it would be necessary to consider whether s.43 of the Federal Magistrates Act conferred such power upon this court. However as the Full Court found in Griffiths that no order had been made to be corrected under such a power, it was not necessary to consider this question.  Their Honours assumed for the purposes of the proceedings that the Federal Magistrates Court was entitled to invoke O.35 r.7 (at [15]).

17. Subsequently Lindgren J addressed this issue in Roskell v Snelgrove and found not only that the power conferred by O.35 r.7(3) of the Federal Court Rules was available to the Federal Magistrates Court under r.1.05(3)(b) but also that, if that was not the case, there would in any event be available to a Federal Magistrate an implied power to the same effect (at [37] – [38]). The respondent did not suggest that this Court lacked the power to correct an error arising in an order made by a Registrar of this Court from an accidental slip or omission, whatever the source of that power. I have proceeded on the basis that I have the power to correct an error in an order of a Registrar of this Court by the application of O.35 r.7(3) of the Federal Court Rules pursuant to r.1.05(2) of the Federal Magistrates Court Rules and s.43 of the Federal Magistrates Act.

18. The next issue that arises is whether the omission by the applicant to seek an order pursuant to s.52(5) of the Bankruptcy Act is a mistake of the nature that can be corrected under the slip rule. Again the respondent did not dispute that the mistake was of such a nature. Rather it was contended that the Court ought not to exercise the discretion under the slip rule to make the order sought by the applicant in the particular circumstances of this case.

19. The slip rule may be used to extend time notwithstanding that the time for the making of an order under a provision such as s.52(5) of the Bankruptcy Act has passed (see Re Young; Ex part Smith (1985) 5 FCR 204 and Griffiths v Boral Resources at [30] and Roskell v Snelgrove at [58] – [59]).

20. In Re Howell; Ex parte Commissioner of Taxation (1996) 70 FCR 261 Burchett J of the Federal Court applied the slip rule in circumstances where there was an inadvertent omission by a petitioning creditor to request an extension of time in relation to a creditor’s petition which lapsed prior to the date to which the matter had been adjourned by the Registrar. It was not in dispute that it was the creditor's oversight which resulted in there having been no application for an extension under s.52(5) of the Bankruptcy Act. His Honour stated at 262:

    In my opinion, it is plain that this was the kind of mistake to which cases concerned with what is called the "slip rule" refer; and that the Registrar, whose attention was, by reason of the mistake, not drawn to the particular problem, also made a mistake of the same character when the orders in respect of the adjournment were made without the addition of an order pursuant to subs (5) of s 52.  That seems particularly plain in this case, where ancillary directions were given which could have had no other purpose than to enable the petition, as a live petition, to be given effect on a date subsequent to the expiry of the period of 12 months from its presentation.

21. His Honour followed the approach taken in Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd (1995) 61 FCR 385 by Lockhart J at 391 to the effect that the principle “does not require the Court to inquire into the actual state of mind of the judge to whom the slip is attributed” but that it may “act on the basis that he (or she) would have had a particular intention but for some omission, such as the failure of a party's representative through inadvertence to request the making of some appropriate ancillary order” (Howell at 263 per Burchett J).

22. In this case there is evidence before the Court consisting of the affidavit of Irene Chan, who was present in Court on behalf of the applicant on 27 February 2009 (the last day the matter was before the Court before the time the creditor's petition expired), that the DCT "inadvertently" omitted to seek an order extending the time for expiration of the creditor’s petition. While Ms Chan’s affidavit refers to an order pursuant to s.52(2) of the Bankruptcy Act, this is clearly a typographical error as Ms Chan attests that the omission was to seek an order to seek an extension of the life of the petition prior to its expiration on 3 March 2009.

23. I am satisfied that such an inadvertent omission is the kind of "mistake" that can be corrected under O.35 r.7(3) or the so-called slip rule.  I note that in this case, as in Howell, on 27 February 2009 the Registrar made ancillary orders for each of the parties to file and serve affidavit evidence.  Such orders, which were made by consent, could have had no other purpose than to enable the petition "as a live petition" to be given effect to on a date subsequent to the expiry of the period of 12 months from its presentation. In those circumstances I am satisfied that the Registrar would have intended to extend the time under s.52(5) had it not been for the “inadvertent omission” of the applicant to request such an order. 

24. In that respect I note that while the adjournment on 27 February 2009 was sought by the DCT in order to allow time for an amended notice of assessment to be issued to Mr Sedrak and for the matter to be referred to a Federal Magistrate for hearing on 17 March 2009 (cf Howell), the short minutes of orders were signed by the representatives for both parties as consent orders.

25. When the matter was next before a Registrar of the Court (on 17 March 2009) it was again adjourned on the application of the applicant creditor to 21 April 2009 and further orders were made for each of the parties to file and serve any affidavit evidence.  Each of the parties signed those short minutes of orders which bear a notation that the creditor’s petition had expired and that any application to extend the life of the creditor's petition would be heard on 21 April 2009.

26. The respondent contended that the Court ought not to exercise its discretion to make the order sought by the applicant on the basis that the applicant bore responsibility for the delay in proceedings.  In particular, the DCT was said to have failed to acknowledge receipt from the respondent's accountant of PAYG payment summaries for the years ending 30 June 2005, 2006 and 2007 which were relevant to the processing of the respondent’s amended income tax returns to include PAYG withholding credits withheld from his salary by the payer, a company of which he was a director.  Mr Ghaly, the respondent’s accountant, attested that a letter dated 22 July 2008 was sent from his office to the Australian Taxation Office in response to a request for such material, attaching PAYG payment summaries for the relevant years. 

27. From correspondence annexed to Mr Pollack’s affidavit, it appears that the DCT did not receive this correspondence until service of the affidavit of Mr Ghaly filed on 16 September 2008 to which a copy of the correspondence was annexed.  The Legal Services Branch of the ATO advised Mr Pollack on 16 October 2008 that, as advised on 22 September 2008, the PAYG summaries received were insufficient evidence to establish the credit entitlement Mr Sedrak sought to claim.  He was invited to provide further information.  In October 2008 the respondent’s objection was disallowed.  In the absence of evidence that the payer company had lodged business activity statements in relevant years reporting any amounts as PAYG withholding, the respondent was found not to be entitled to withholding credits.

28. In a letter of 29 January 2009 the ATO advised of its decision on review of the respondent’s amended income tax returns for the years ended 30 June 2005, 2006 and 2007.  It reminded the respondent of the fact that the payer company had not lodged business activity statements for those income years reporting any amounts as PAYG withholding.  The letter also stated that Mr Sedrak had not provided a payment summary statement prepared by the payer for 2004 – 05. 

29. The respondent took issue with the fact that notwithstanding the attachment of copies of PAYG Payment Summaries to the affidavit of Mr Ghaly relating to Mr Sedrak, the DCT thereafter expressed the view in correspondence that this information had not been provided to the Taxation Office and on this basis stated that the respondent's entitlement to a PAYG credit could not be established. 

30. In fact it appears that while the Legal Section of the ATO acknowledged receipt of such material in correspondence in relation to these proceedings, another section of the ATO maintained the assertion that the material had not been provided as requested (that is, to the section of the ATO that had requested the information). 

31. On 16 February 2009 the solicitor for the respondent wrote to the Legal Section of the Australian Taxation Office taking issue with the assertion in the letter of 29 January 2009 that the respondent had not provided payment summary statements, as the Australian Taxation Office had earlier acknowledged receipt of the payment summary statements as annexures to Mr Ghaly's affidavit.  

1. On 26 February 2009 the Legal Services Branch of the ATO advised the solicitor for the respondent that the audit officer of the ATO had since received the payment summary statements sent to the Legal Services Branch and that the ATO would be allowing Mr Sedrak's PAYG withholding credit claim for the income year ending 30 June 2005 in light of new information provided. 

2. Mr Pollack for the respondent submitted that the information had already been provided and that this chain of events demonstrated an unwillingness or inability on the part of the DCT to process the matter and determine Mr Sedrak’s liability for income tax to reflect a credit for the year ending 30 June 2005 and that this was the reason for the delay in these proceedings. 

3. I note that the letter from the Australian Taxation Office of 26 February 2009 made the point that the audit officer had directly requested Mr Sedrak’s accountant to send these documents to the office of the audit officer on six occasions between December 2008 and January 2009.  The documents were not provided as requested.  Rather, after the respondent's solicitor’s letter of 16 February 2009 the audit officer received the payment summary statements that had been served on the DCT on 15 September 2008 as annexures to Mr Ghaly’s affidavit. 

4. The DCT advised the respondent’s solicitor on 25 February 2009 that a further amended notice of assessment for the year ending 30 June 2005 would be issued by the ATO to reflect the PAYG withholding credit claims and that on this basis they were instructed to adjourn the proceedings on 27 February 2009 to 10 March 2009 to allow time for the amended notice of assessment to be issued and for the matter to be referred for hearing before a Federal Magistrate on 10 March 2009.  The respondent submitted that the fact that the creditor sought this adjournment was relevant to the exercise of the Court’s discretion. 

5. The respondent also contended generally that if the petition was not reinstated the applicant would suffer no prejudice as it could “start again”, but that if the petition was reinstated there would be a "financial prejudice" to the respondent and that while the creditor's petition was on foot the respondent could not "sort out" what he really owed to the Australian Taxation Office. 

6. I am not persuaded that the submissions of the respondent are such that I should not exercise the discretion to make the orders sought by the applicant.

7. The respondent relied on the general principles considered in Elyard Corporation Pty Limited v DDB Needham Sydney Pty Ltd (1995) 61 FCR 385 in relation to when the discretion under the slip rule should be exercised. Lockhart J (with whom Black CJ agreed) stated at 390 – 391 that:

   The slip rule applies where the proposed amendment is one upon which no real difference of opinion can exist.  It does not apply where the amendment is a matter of controversy; nor does it extend to mistakes that are the consequence of a deliberate decision.

8. The circumstances in this case are not such as to establish that the amendment sought by the applicant to extend the life of the petition is a matter of controversy.  Each of the parties clearly proceeded on 27 February 2009 on the basis that the creditor's petition was on foot and remained on foot at least until the next occasion when the matter was before the Court. 

9. As Lockhart J observed in Elyard at 391 the slip rule “extends to permit the correction of an order or decree where the omission results from the inadvertence of a party's legal representative,” as I am satisfied occurred in this case. 

10. It has not been established that the mistake (that is the omission to seek an order extending the life of the petition) was the consequence of a deliberate decision on the part of the ATO or that it had exhibited unwillingness or inability to process the respondent’s 2004 – 05 (or later) income tax returns such that the discretion ought not to be exercised. 

11. The respondent's contentions in relation to delay and the conduct of the proceedings generally are not such that the discretion should not be exercised.  The DCT provided the Court with a chronology of proceedings that the respondent did not dispute.  The initial adjournment of the proceedings on 21 May 2008 was sought by the DCT to consider issues raised in an affidavit sworn on 20 May 2008 by the respondent.  On the next three occasions the matter was adjourned by consent.  On the next occasion, on 16 September 2008 it was adjourned on the application of the respondent on the basis of the affidavit of Mr Ghaly with orders made in respect to the filing of evidence.  It is relevant to note that during this time the ATO was processing Mr Sedrak’s income tax returns, objections and review. 

12. On the next two occasions the respondent sought an adjournment which was opposed by the ATO.  On each occasion the adjournment sought by the respondent was granted by a Registrar.  The second of these was an adjournment granted on 25 November 2008 until 27 February 2009.  The fact that it was the ATO which sought the adjournment on 27 February 2009 in the circumstances described above is not such as to establish that the orders should not be made.

13. I am satisfied that the DCT’s failure to seek an order under s.52(5) on 27 February 2009 was a mere inadvertent omission which, given what had occurred prior to that time, would have been made as a matter of course by the Registrar in order to allow the creditor's petition to be dealt with by the Court once the parties filed foreshadowed further affidavit evidence. As in Elyard, when the occasion arose before the Registrar for the seeking of an order for an extension of the life of the petition, through inadvertence on the part of the DCT (represented by its Legal Services Branch) it was not sought.  Such circumstances properly invoke the slip rule and the operation of O.35 r.7.3.

14. Insofar as the respondent intended to contend that there was some undue delay on the part of the DCT after it became aware of the extension of time issue, it is apparent that when the omission was brought to the attention of the parties on 17 March 2009 it was indicated that the issue of an application for an extension of time under the slip rule would be addressed on the next occasion the matter was before the Court.  This in fact occurred.  It has not been established that there was prejudice to the respondent arising from uncertainty caused by any delay in seeking to have the mistake corrected as considered to in Elyard at 392.

15. Accordingly, I am satisfied that there was an error in the orders made by a Registrar of this Court on 27 February 2009 arising from an accidental omission of an order under s.52(5) that would enable the orders for adjournment and for the filing of further affidavit evidence in anticipation of a hearing to have their full intended effect (see Roskell v Snelgrove at [55]).

16. On 27 February 2009 both the parties and the Registrar clearly intended that the creditor’s petition should remain live until at least the next return date.  Otherwise the consent orders made on that day would have been “exercises in futility” (see Lindgren J in Elyard at 400).

17. Where an order is properly made under the slip rule, its effect is that the error in the original order is eradicated so that the original order is treated as having been always made as corrected (see Elyard at 400).  Hence it is appropriate to order that there be included in the orders of the Court made on 27 February 2009 an order that the period at the expiration of which the petition will lapse be the period of 24 months commencing on the date of presentation of the petition.  I note in this respect that while the respondent opposed the order sought, it was not suggested that if an order were to be made extending the life of the petition it should be for a period of less than the period of 24 months commencing on the date of presentation of the petition.

18. As the applicant sought, the costs of this application should be reserved. 

I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate: 

Date:  8 May 2009