Deputy Commissioner of Taxation v Soong
[2013] FCCA 2106
•10 December 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DEPUTY COMMISSIONER OF TAXATION v SOONG | [2013] FCCA 2106 |
| Catchwords: BANKRUPTCY – Notice of opposition to creditor’s petition – where creditor’s petition founded on non-payment of judgment debt against respondent debtor – where initial judgment debt against reduced by payment of instalments – where payment of instalments ceased – where director penalty notices issued against respondent debtor – where bank cheque for amount in petition produced to the court – where respondent debtor intended cheque to be tendered in payment of amount specified in petition – where applicant indicated rejection of tender unless it could use moneys against the debts of respondent creditor under director liability penalties pursuant to Taxation Assessment Act 1953 – where applicant permitted by Act to allocate funds paid to him by tax payer at his discretion – where applicant not required to take into account instructions of tax payer – whether debtor’s restriction of use of cheque constitutes condition invalidating its use as a tender – whether refusal to accept tender of full amount of debt in petition constitutes ‘other sufficient cause’ – whether proceedings instituted improperly – whether refusal to accept tender of cheque constitutes abuse of process. |
| Legislation: Taxation Assessment Act 1953, Div 12 Sch 1 Bankruptcy Act 1966, (Cth) s.52(2) |
| Moss v Smith (1808) 1 Camp 489; 170 ER 1031 International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | STEVEN ANDREW SOONG |
| File Number: | SYG 770 of 2012 |
| Judgment of: | Judge Raphael |
| Hearing date: | 2 December 2013 |
| Date of Last Submission: | 2 December 2013 |
| Delivered at: | Sydney |
| Delivered on: | 10 December 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr L T Livingston |
| Solicitors for the Applicant: | ATO Dispute Resolution |
| Counsel for the Respondent: | Mr J Johnson |
| Solicitors for the Respondent: | Diamond Conway |
ORDERS
Notice of Opposition dismissed.
Costs reserved.
Hearing of petition at 2.15p.m. on 16 December 2013.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 770 of 2012
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| STEVEN ANDREW SOONG |
Respondent
REASONS FOR JUDGMENT
On 10 April 2012 the Deputy Commissioner of Taxation[1] presented a petition seeking a sequestration order against the estate of Steven Andrew Soong. In the petition the Commissioner claimed:
“1. The respondent debtor owes the applicant creditor the amount of $106,960.00 for:
(a)The amount of $388,223.01 and costs of $21,847.90 due under a final judgment obtained in the Supreme Court of New South Wales at SYDNEY on 28 May 2009, less credits in the sum of $192,288.50, plus $72,177.59 being interest on the balance of the judgment up to 27 February 2012; and
(b)Minus a credit in the amount of $183,000.00 on 24 February 2012.”
[1] “Commissioner”
The act of bankruptcy claimed by the Commissioner was the debtor’s failure to comply on or before 27 February 2012 with the requirements of a bankruptcy notice served on him on 22 November 2011. The bankruptcy noticed exhibited a judgment dated 28 May 2009 in the sum of $388,223.01 plus $21,847.90 costs. The amount of the judgment debt has been reduced as indicated in the petition. This was done by an instalment regime initially of $10,000.00 per month, later of $2,500.00 per month. It would appear that these repayments ceased in January 2011. After the petition was issued in April 2012 the matter was adjourned on several occasions during which time notices were sent to Mr Soong in respect of the liabilities of two companies of which he was a director, Lafari Pty Ltd and Linsari Pty Ltd in respect of amounts withheld under Division 12 and Schedule 1 of the Taxation Assessment Act 1953.
As the respective companies continued to withhold these moneys and did not otherwise comply with the notices director penalty notices were issued against Mr Soong requiring him to pay the estimated liability of the company within twenty-one days from the date of issue of various letters making claims. No payments were made and the Commissioner issued a notice of director’s liability to pay penalties to Mr Soong. On 5 November 2013 the Commissioner issued a certificate under s.255-45 of Schedule 1 of the Taxation Administration Act 1953[2] in the following form:
“Pursuant to section 255-45 of Schedule 1 of the Taxation Administration Act 1953 I hereby certify that:
1.Steven Soong has a tax related liability, namely penalties arising under section 269-20 of Schedule 1 to the TAA 1953 (“the Act”).
2.Notices issued under section 269-25 of Schedule 1 to the TAA 1953 of the Act were served on 26 September 2012, 14 January 2013, 17 January 2013, 8 March 2013, 24 June 2013, 29 July 2013, 9 July 2013, 9 July 2013, 15 August 2013, 27 September 2013 in relation to that tax related liability.
3.The sum of $443,076.00 is at 5 November 2013 a debt due and payable by Steven Soong to the Commonwealth of Australia in respect of the tax related liability referred to in this certificate.”
These obligations of Mr Soong to the Commissioner were created post the presentation of the petition.
[2] “TAA”
The Commissioner determined to proceed with the petition. The matter came before the court on seven occasions, penultimately on 18 November 2013. At that time a bank cheque, said to be a gift from the debtor’s brother to him in the amount claimed in the petition, was produced to the court. It was placed in an envelope and kept with the court file whilst the matter was adjourned for further hearing to 2 December 2013. It was intended that the bank cheque be tendered in payment of the amount due under the petition. However, the Commissioner indicated that he would be inclined to reject the tender unless it was accepted by the debtor that the moneys represented by the bank cheque could be utilised pursuant to the TAA ss.8AAZL, 8AAZLB and 8AAZLE against the debts of Mr Soong under the director liability penalties. Mr Soong maintained the funds had been given to him for the purpose of paying the amount due in the petition. It was agreed that the matter would be adjourned until 2 December 2013 so that Mr Soong could argue that upon the tender being made the court should exercise its discretion under s.52(2) of the Bankruptcy Act 1966 (Cth)[3] to dismiss the petition, the debt due thereunder and a sufficient sum for costs having been paid.
[3] “Act”
In the helpful written submissions prepared by Mr Johnson on behalf of Mr Soong, he states at [5]:
“[5] The amount of the proceeds of the cheque was:
(a)Tendered unconditionally except to the extent that it was to be treated in satisfaction of the indebtedness provided for under paragraph 1 of the Creditor’s Petition.
(b)Indicated as having been sourced from funds gifted to the Respondent for the express purpose of the making of the tender.
And continues:
[6]It is submitted in the circumstances where the tender has been, it is submitted, unreasonably refused that there has been a valid tender so as to extinguish the indebtedness claimed by the Applicant in the Creditor’s Petition: Australian Mid East Club Limited v Yassim (1989) 1 ACSR 399 at 403 per Meagher JA.
[8]It is submitted in the circumstances that debts that have arisen or are claimed to have arisen and which are not the subject of a judgment (in particular) are not debts upon which the Applicant could amend the Creditor’s Petition so as to claim relief in the Creditor’s Petition as they would not be: firstly, a debt presently due and owing at the date of the Act of Bankruptcy; or alternatively a debt presently due and owing at the date of the presentation of the Creditor’s petition.
[9]In circumstances where the Applicant has indicated that it would accept the payment but would only treat that payment as reduction of an indebtedness that could not be relied upon for the present purposes of the present proceedings it is submitted that such conduct evinces an intention in relation to the ongoing maintenance of the proceedings as that akin to pure debt recovery process which would constitute relevantly an abuse of process according to accepted principles: Williams v Spautz (1992) 174 CLR 509.”
That the debt must have accrued due before the occurrence of the act of bankruptcy on which it is intended to found the petition was first asserted in Moss v Smith (1808) 1 Camp 489; 170 ER 1031 and reiterated in Re Debtors (1927) 1 Ch 19. It must also have been a liquidated debt before the act of bankruptcy; Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256; Australia & New Zealand Banking Group Ltd v Coutts (2003) 201 ALR 728.
It was not argued by the Commissioner that the penalty debts could be added to the petition by amendment. The Commissioner did, however, resist the submission that he was using the bankruptcy process as a method of debt collection or that he was placing illegitimate pressure upon the debtor by insisting that the money could only be accepted in part settlement of the outstanding penalties rather than the substantive debt that gave rise to the petition.
It cannot be denied that the statutory regime of s.8AAZL of the TAA permits the Commissioner to allocate funds paid to him amongst the various tax debts of a taxpayer at his discretion. The Commissioner is not required when doing this to take account of any instructions of the tax payer (s.8AAZLE). One of the questions the court should consider is whether by restricting the payment to the debt contained in the petition Mr Soong is thereby attaching a condition to the tender which would invalidate it as a tender; Australian Mid- Eastern Club Limited v Yassim (1989) 1 ACSR 399:
“There is ample authority that the proffering of cash or its equivalent in the full amount demanded constitutes a valid tender, even if proffered “without admissions” or “under protest” provided only it is unconditional; see Scott v Uxbridge and Rickmansworth Railway Co (1866) LR 1 CP 596; Sweny v Smith (1869) LR 7 Eq 324; Greenwood v Sutcliffe [1892] 1 Ch 1; and Burnham v Carroll Musgrove Theatres Ltd (1928) 41 CLR 540 at 558 per Isaacs J.” (per Meagher JA at [403]
Mr Johnson’s argument that the tender is unconditional because it is made in proceedings in which the only debt claimed is the amount for which the tender is made is attractive, but in the context of the statutory rights of the Commissioner to apply the money it seems to the court that the taxpayer is providing an instruction to the Commissioner that would have the same effect as a condition. As a conditional tender is no tender Mr Soong’s claim that the debt would be extinguished by it cannot be maintained.
Notwithstanding the above findings it is well that the court considers the argument put by Mr Soong as to the alleged improper purpose of the Commissioner and then the matters raised by the Commissioner in his general response to the debtor’s argument.
In McIntosh v Shashoua (1931) 46 CLR 494 the High Court: Gavan, Duffy CJ, Starke, Dixon, Evatt and McTiernan JJ considered both an aspect of improper purpose and the effect on a petitioning creditor of a tender of the amount claimed in the petition. In regard to the former Gavan, Duffy CJ and Dixon J opined at [504]:
“It was urged, however, that a sequestration order ought not to have been made with this debt as its foundation, because the Court of Bankruptcy should have been satisfied that for a sufficient cause no order ought to have been made. The petition was presented by the attorney under power of the petitioning creditor, and the cause relied upon consisted in the motives by which he was actuated in purchasing the debt and presenting the petition. These motives were investigated in the Court below, but it was not shown that the attempt to obtain a sequestration order has any collateral purpose. It was, of course, admitted that the debt was purchased for the very purpose of presenting the petition. But the evidence is consistent with the view that the object of seeking a sequestration order was to have the debtor’s assets applied towards satisfying the claims of the petitioning creditor as well as of other creditors…
Their Honours continued at [505]:
“The fact that after the presentation of the petition the debtor tendered payment of the assigned debt and the tender was refused cannot in this case affect the result. A petitioning creditor is entitled to refuse payment and proceed with the petition (In re Gentry (1910) 1 K.B. 825). The refusal of the tender in this case is consistent with the conclusion, and if it does not strengthen it, that the petitioner truly desired to obtain a sequestration order; and it in no way intends to show that the reason why such an order was desired was anything but legitimate.”
Stark J said at [508]:
“The Court will not allow proceedings in bankruptcy to be taken for an improper purpose. But there is nothing improper in a creditor who has bona fide claims against the debtor, or whose debt is insufficient to support a petition, buying up another debt for the purpose of having the debtor’s assets protected and distributed in bankruptcy (King v Henderson (1898) A.C. 720). It is plain in this case that the petitioner had no other purpose, though offered payment of the judgment debt after the petition had been lodged. It would be quite contrary to the spirit of the Bankruptcy Act to compel a creditor to receive payment of the debt after an available act of bankruptcy had been committed (Brook v Emerson (1906) 95 L.T. 821); In re Gentry (Ibid).”
There are a number of authorities in the Federal Court indicating that a refusal to accept a tender of the full amount of the debt in a creditor’s petition does not constitute “other sufficient cause” within the meaning of s.52(2)(b) of the Act; International Alpaca Management Pty Ltd v Ensor [1999] FCA 72; Re Ell; Ex parte Austin (1886) 4 NZLR 114; Re Gentry [1910] 1 KB 825; McIntosh v Shashoua (1931) 46 CLR 494; Australian Mid-Eastern Club Ltd v Yassim (1989) 1 ACSR 399; Australia & New Zealand Group Ltd v Foyster [2000] FCA 400; Australia & New Zealand Banking Group v Coutts [2003] FCA 968; AMP Finance Ltd v Burns (No.1 ) [2005] FMCA 646; Elders Ltd v Lloyd & Anor [2005] FMCA 1020; Deputy Commissioner of Taxation v Cumins [No 5] [2008] FCA 794; Westpac Banking Corp v Faress [2011] FMCA 26
In the instant case the applicant maintains that the non acceptance of the tender was made for good reason. He was concerned as to the solvency of the debtor. The tender moneys did not come from the debtor’s own funds but from his brother. The taxation liability was old, the original judgment having been entered on 28 May 2009. Additional taxation liabilities have accrued since September 2012 being the director’s penalty notices previously referred to. Acceptance of the tender on the basis upon which it was made by the debtor might constitute a preference upon a later bankruptcy. Given the amount of the outstanding liabilities to the Commissioner a later bankruptcy was very much a possibility.
Whilst Mr Warren Soong, the debtor’s brother, did indicate that he was hoping to obtain sufficient finance upon a property which he owned in order to pay out the debtor’s additional obligations to the Commissioner the evidence supporting his ability to do this and his ability to service any such loan is minimal. It consists of unsubstantiated assertions about the value of his property and the possibility of it being rezoned and the value increasing. The Commissioner also notes that the offer made by Mr Warren Soong only takes into account the current debt whilst the director penalty liabilities of the debtor continue to accrue on a month to month basis of at least $30,000.00 per month. For completeness I would note two matters raised by the Commissioner that do not appear to me to be of importance. The first is that it might take until February 2014 to raise the necessary funds. This does not seem to me in the circumstances to be an unreasonable amount of time in which to adjourn the petition. The court notes that the petition itself will expire in April 2014 but a refinancing completed by the end of February would still be within time. The second matter is the criticism of the “gift” from Mr Warren Soong. It is suggested that there may be conditions to it. However, the only available evidence is that the money will be gifted and the court is entitled to take it at face value.
Does the Commissioner’s conduct in refusing to accept the tender on the basis it was made and its insistence upon using the money for the satisfaction of another debt which is not capable of being included within the petition an abuse of process? Does it constitute, as Mr Johnson argues, an attempt to extort money out of the debtor by keeping the bankruptcy proceedings over his head when they may have been dismissed because the underlying debt no longer existed. What constitutes extortion in these circumstances and whether it is sufficient to warrant the dismissal of a petition for “other sufficient cause” was considered by the High Court, Dixon CJ, Webb J, Fullager J in Rozenbes v Kronhill (1956) 95 CLR 407. Their Honours reviewed the cases relating to extortion in this context and found that in the majority they were cases where sums which the debtor was not legally compellable to pay had been exacted by a creditor by means of a threat of bankruptcy. In those circumstances there was a collateral purpose to the issuance of the petition which would allow the court to dismiss it. At [417] their Honours held:
“The conclusions to be drawn from the cases are stated in a series of five propositions by Lord Evershed MR for himself, Jenkins LJ and Romer LJ. The case seems finally to establish that the ultimate principle involved is that a court will not allow its process to be abused. There is an abuse of process if a pending bankruptcy petition, or a threat of proceedings in bankruptcy, is used as a means of extortion.”
In the court’s view what has occurred in this case goes nowhere near what is required to find extortion. Importantly, the petition was not issued for any collateral purpose or to obtain the payment of any moneys not otherwise payable from the debtor. The petition was issued a year before the debts to which the Commissioner wishes to assign any payment made by the debtor were incurred. Then there is the lawfulness, encapsulated in statute, of the Commissioner’s ability to utilise the money for the purposes of satisfying in part some other debt. Finally, there is the fact that it is really the debtor who has been putting up all the conditions. It is he who is insisting that the money be utilised only in settlement of the debt referred to in the petition and he is doing that because this is the only way in which the petition could be either dismissed or at least adjourned. The Commissioner wishes to sequestrate. He believes that the debtor is insolvent. He is owed a very large sum by the debtor who is continuing to incur further debts. The Commissioner does not wish to be thwarted in his attempt to sequestrate the debtor by the payment of a sum much less than that he claims he would be able to prove for. This does not strike me as conduct that can fall within the definition of extortion. For these reasons the court is of the view that the notice of opposition filed on 8 June 2012 should be dismissed and that upon proof of the formal matters a sequestration order should be made. The costs of these proceedings will be reserved. The matter will stand over for the hearing of the petition at 2.15p.m. on 16 December 2013.
I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Judge Raphael
Associate:
Date: 10 December 2013
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