Faulkner, M.F. v Conwell, R.L.

[1988] FCA 567

3UD-GMENT

LIMITED DISTRIBUTION

CATCHWORDS

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Administrative Law - judicial review - application>, to review

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refusal o f request f o r extension of time for payment of

outstanding income tax liability - applrcation to review refusal

o f request f o r remission of additional tax	- whether applrcant	__
entitled to orders sought.

Administratlve Decisrons (Judrcial Revrew) Act	1977 (Cth.) s.13(1)
Income Tax Assessment Act 1936	(Cth.) ss.206 and 207(1A)
lrinister f o r Aboriginal Affairs and Anor	v. Peko-Wallsend Limited
and Ors, 162 C.L.R. 24
MICEAEL FRWCIS FAULKNER v . R.L. COINWELL
VG144 of 1988
Sweeney, J. Melbourne
7 October, 1988

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IN THE FEDERAL COURT OF AUSTRALIA	)
)
VICTORIA DISTRICT REGISTRY	1 No. VG 144 of 1988
)

DIVISION	GENERAL	1
:	BETWEEN: MICHAEL FRANCIS FAULKNER	Applicant

AND : R.L. CONWELL Respondent

, :

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THE COURT: Sweeney J.	.-
PLACE : Melbourne

: 7 October, 1988

- DATE

MINUTES OF ORDER

THE COURT ORDERS THAT:

the appllcatlon be dismlssed, with costs.

Note: Settlement and entry of orders 1 s dealt with in Order

36 of the Federal Court Rules.	I :.
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IN THE FEDERAL COURT OF AUSTRALIA )

1

VICTORIA DISTRICT REGISTRY	)	No. VG 144 of 1988
1
GENERAL DIVISION	)

BETWEEN:  MICHAEL FRANCIS FAULKNER Applicant ! S .

AND : R.L. CONWELL Respondent

,

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THE COURT: Sweeney J.

PLACE : Melbourne

: 7 October, 1988

- DATE

REASONS FOR JUDGMENT	._
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This is an application for an order to review three decisions

of the respondent, a Deputy Commissioner of Taxation:

._

( 1 ) refusing requests by the applicant pursuant to the

provisions of 5.206 of the Income Tax	Assessment Act,
1936 (Cth.) ("the Act") f o r an extension of time for	i
payment of outstanding income tax liability;	i

(ii) refusing a request by the applicant for a remisslon of

additional tax pursuant	to the provisions	of S.207(1A)
of the Act: and

(iii) to entcr judgment against the applrcant in the Supreme

Court of Victorra at Melbourne on 23 March 1988 in relation to two separate proceedings, one for income

tax in respect	of the years between	1977 and 1985, and
the other	f o r income tax	in respect of the year ended

30 June 1986.

The relevant seccians of the Act read as follows:

"206. (l) The Commissioner may in any case grant such extension of time f o r payment of tax, or

permit payment of tax to be made by such

!	lnstalmencs and wthin such time as he considers
the circumstances warrant; and ln such case the tax
shall be due and payable accordrngly. ( 2 ) In sub-section (l), 'tax' includes addltional

tax under Part VII.

207.  (l) ...

(lA) Where additronal tax is due and payable

by a person under this section In relation to

an amount of tax and-

(a) the Commissioner is satisfied that-

(i)    the circumstances that contributed to the delay in payment of the tax

were not due to, or caused

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directly or. indirectly by, an act

l or omission of the person; and

(il) the person has taken reasonable

action to micigate, or mltigate

the effects of, those

clrcumstances;

(b)	the Commlssloner is satisfled that-
( 1 ) the clrcumstances thac contributed to the delay in payment of the tax were due to, or caused directly or

indirectly by, an act or omission

of the person; , '

(ii) the person has taken reasonable

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action to mltlgate, or mitigate I .

effects	the	of,	those
clrcumstances; and

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(1ri)	having regard to the nature of those clrcumstances, it would be farr and reasonable to remrt the
additional tax o r part of the
additlonal tax; or

[c) the Commissioner is satisfied that there

are special clrcumstances by reason of

whlch It would be farr and reasonable to
remlt the additlonal tax o r part of the

additional tax,

the Commlssroner may remlt	he addltional tax
or part of the additional	tax.".

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! On 17 October 1985, the applicant had wrltten to the .

respondent offering to accept a taxation liability not exceeding . __- .

_. _ _ .

$221,556.82 (lncluslve of penalties) rn respect of the income-.-

years ended 30 June 1977 to 30 June 1984 inclusive (excludrng

provislonal tax f o r the year ended 30 June 1984). The offer was	.. , I
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made on the basis that no objectlons would be made agalnst
assessmenes raised on	the basrs of the ofL-er, nor would any

amendments to them be sought.

On 2 3 October 1986, the then Deputy Cornmissloner accepted thls offer and conflrmed that assessments would 1ssue amounting S:.

to :.

the sum proposed by the appllcant in settlement of the outstandlng	I
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1977 to 30 June 1984 inclusive.

income tax matters in respect of the Lncome years ended 30 June

Amended assessments were accordlngly served on the applicant

in relation to the appllcant's cax liablllty for the years endlng

30 June 1978 to 30 June 1985 incluslve, and the Deputy

Commlssioner received a proposal for payment contained in a letter from the applicant's accountants dated 17 December 1986, which

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I read as follows:

"We are in receipt of amended assessments for the

years 1978, 1979, 1980, 1981, 1982, 1983 and 1984, and a notice of assessment for 1985 for the above taxpayer.

Due to flnanclal difficulties caused	by a loss of
$1.1 million in the flrst	4 months of the 1986/87

financial year, the taxpayer 1 s currently unable to

pay the total amount In full.

The taxpayer does not have the abiliq to borrow

the necessary funds	as he has already borrowed	$1.4
million from hls bankers	to	keep his business
afloat.

We wish to make the following proposal for

repayment of the outstanding tax; A payment of

$75,000 lmmedlately, and monthly repayments of

$20,000 untll the total amount is repaid.

Could you please contact Nr. A.K. Gowland of this offlce reqarding the above proposal.".

The losses referred to In the letter were suffered in the

course of the appllcanc's busmess as a bookmaker.	L. '
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The then Deputy Commlssioner responded by letcer dated 16

January l987 requesting full details of all aspects of his

financial position to enable consideration to be grven to the

i proposal. Subsequently the Australian Taxatlon Office recezved a

letter from the	appllcant's accountants dated	3 February 1987 wlth
follows:

a Stacement of Assets and Liabllltles attached, which read as

"Further to o u r telephone conversatlon f

yesterday, please flnd enclosed	a Statement of
Assets and Liabilitres for	the abovenamed taxpayer,.
as at 3rd February,	1987.

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As can be seen from the Statement, the taxpayer is

in a net liability sltuatlon due to the fact that

his busrness (Licensed Bookmaker) has had a severe drop in proflts in the current financial year. 1

I should also reiterate that the sum that 1 s being claimed by the Deputy Commissioner of Taxation 1 s

mainly penalty tax and not taxation on supposedly

earned income.	AS such I f r . Faulkner is in no
position to pay the amount clarmed in full	at this

tune and hence our proposal to pay S70,OOO (pald to

your department on 12.1.87) and thereafter $20,000

per month untll the outstanding tax has been paid.

AS mentioned In OUT telephone conversatron,	If Iqr.
Faulkner's business for the month increases	its
profits, then	an additional payment over and above

the $20,000 will be endeavoured to be made.

Should you have any queries regardlnq the above

proposal, please contact me.".

As a result of a telephone conversation from Mr. Fred Sheean !

of the Australian Taxation Office to Mr. Gowland of the

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applicant's accountants, the Taxatlon Offlce received a letter and ... 1

attachment from the accountants dated 24 March 1987, which set out

Profit and Loss and Flnancial Statements	f o r the period endrnq	16
March 1987.

Mr. Don Xoss swore on affidavit on behalf of the rsspondent

that he had a further conversation with Nr. Gowland on 29 Apr.1

1987, in the course of which Mr. Gowland stated that the

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taxpayer's return for the year endlnq 30 June 1986 would be lodged

wrthin the next 3 to 4 weeks and that he (Mr. Gowland) would

arrange the submission of a fresh Scatement of Assets and

Llabillties.

In fact, the applicant's return for ths year endlng 30 June

1986 was not lodged untll 4 September 1987 and no fresh Statement

of Assets and Liablllties was recelved. Counsel for the

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respondent relled only upon the latter fact.

Mr. Gregory swore on affidavit on behalf of the respondent

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that on 16 September 1987 he spoke by telephone with Mr. Davis of

the applicant's solicitors and was informed that further financial

statements would be provided. No such statement was provided.

Mr. Wat in an affidavit flled on behalf of the respondent	I.
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deposed that on 5 October 1987 he telephoned Mr. Gowland and . -

requested a firm proposal within seven days for repayment of the

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tax and financial statements, failing which recovery action would

be initiated.

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On or about 17 October 1987, the Deputy Commissioner's Offlce ;.

received a letter from the appllcant's sollcitors, Vorrath Davis &

Abercrombie, purporting to explain the fallure to lodge a

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financial statement and advislng that further liaison concerning

the applicant be conducted wlth the applicant's accountants.

In a further affidavlt Mr. Wat deposed that on 5 November

1987 he telephoned Mr. Gowland and advised him that legal action was about to be commenced, but that there would be tlme between

the issue of the wrlt and the entry of ~udgment for the taxpayer

to lodge detalled financial statements including personal living

expenses, and a frrm proposal for repayment. He	stated that Mr.
Gowland replied that he	would prepare the flnancial statements and

put forward a fresh proposal.

!

The first writ was lssued on 12 November 1987. Evldence on

behalf of the respondent was that no financial statements were

ever received by the Commissioner's Office as arranged. The

second writ was lssued on 3 February 1988 and served	on the
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applicant on 10 February 1988.

Following the telephone conversation of 5 November 1987 two

letters dated 9 November 1987 and 23 November 1987 were received
f rom the applicant's solicitors asklng for further time within

which to lodge a progosal or submlssion concerning repaymemt.

Zventually the Commlssioner's Offlce recerved a detalled

letter from the applicant's solicitors dated 19 February 1988

. .

contaxing proposals that tlme for payment be extended and that L

additional tax be remltted. The letter did not contain the

detalled statement of flnancial circumstances requested.

The respondent replied to those proposals by letter dated 10

March 1988, in which he said:

"ileceipt is acknowledged of your proposal f o r

payment of the amounts outstandzng dated 19

February 1988.

You are advlsed that the proposal f o r payment 1 s

unacceptable for the followrng reasons:

1.    The taxpayer has not made any payments since may 1987.

2.	The currenc proposal is f o r a moratorium f o r a
period of 1 2 months wlth Interest accruLng at

$52,000 per annum.

3 .	Insufflclent rnformacion ln relatlon t o
current assets, lrabilities, lncome and

expendlture.

4 . The taxpayer has noc really demonstrated an

1nablllcy CO pay.

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5. It is one of the baslc responsibilltles of the i

Commissloner o f Taxatron to collect	L	.
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outstanding income tax within the financial

year in whlch the lrability f a l l s due.

6.    The taxpayer must have exhausted all avenues for obtaining llqurd funds.

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7.    The taxpayer must clearly demonstrate that he

or she does not have the means necessary to	t
discharge the liability when it falls due.	1

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8. It is nappropriate grant o payment i

concessions where the taxpayer cannot or will

not pay.

In relatron to the request f o r remrssion of the

addrtlonal tax, you are advlsed that this request
has a l so been refused due to the following reasons:

1.   With the exception of natural drsasters, all

extensions of time that are granted, are to be

granted sub~ect to the additional tax for late

payment.

2.    The taxpayer must clearly demonstrate thac he

o r she does not have the means necessary to

discharge the llability when rt falls due.

unless payment rn full of the amounts outstanding

is recelved immedlately, this offlce w z l l have no

alternative but to concrnue legal actron f o r

recovery of the amounts outstanding.	i
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Additional tax continues to accrue at the rate	of
2 0 % per annum from che due date for payment.

No credrt has been given f o r any amount which may be in izranslt.".

The Deputy Commissioner issued a writ rn the Supreme Court of

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Victorla on 12 November 1981, claimrng an amount of $251,573.85 in

respect of income cax and addltronal tax owrng for the years

ending 30 June 1978 to 30 June 1985 inclusrve. Credit was grven

to the applrcant in respect of the year endrng 30 June 1987 in the

sum of $145,434.00. In the result, judgment was encered for the

Deputy Commlssioner on 23 Xarch 1988 f o r 5106,139.85, with

interest of $8,455.10 and costs	of $655.00, makzng	a total of	I..
$115,249.95.
_.
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In relation to the 1986 income 'year, the applicant had

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clarmed that owzng to business losses, his flnancial position had

not improved and that he was unable to meet his outstanding tax

liabrlrty.

In a proceeding commenced by wrzt issued on	3 February 1988,	P ’
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judgment was entered on 23 Xarch 1988 in the sum of $210,094.48 I

inclusive of costs and interest. This	wrrt had been Issued	In
respect of the	appllcant‘s liability for lncorne tax and	additional

, . , I

tax for the year endlng 30 June 1986, pursuant to s.204(1) of the

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Act.

In answer to a request for a statement of reasons, the

respondent replied as follows:

“I refer to your letter of 19 February 1988.	You
asked for a statement of reasons	unde; sectlon 13

of the AD(JR) Act 1977 in relation to the

declsions:

a. not to granc the taxpayer an extensron of

time to pay his	outstandlng caxes In
respect of	the year ended 30 June 1978 to

30 June 1986; and

b. not to grant a remlssion of penalties.

The findrngs on material question of fact were	th
following:

a. The grounds stated by the taxpayer or

warranting an extension of cime for

payment and	a remission of penalcies were
that:

-	i	the funds would have been avarlable
if the amended assessment had issued
in October of 1985 racher than
November of 1986;

ii the taxpayer has borrowed $1,400,000

from his bankers to keep his

busrness afloat; :.

ili the taxpayer’s	busmess has incurred	!
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a trading loss of $1,587,658 for the

t:

1 9 8 7  financial year;

iv if the taxpayer was made bankrupt

hrs business could be rurned and his

employees retrenched;

V the taxpayer will not have any

further debrt assessments as he has

carry forward losses; and

vi hrs business has an excess of

liabilrties aver assets.

b.	The circumstances did not warrant the granting of an extension of time for payment of outstanding taxes pursuant to
sub-sectlon 206(1) of the Income Tax

I Assessment Act (The Act).

c. The crrcumstances dld not warrant a

remisslon of tax under sub-sectron

207(1A) of the Act.

The evidence or other material on -dhlch the

flndrngs were based were:

d. letter dated 1 9 February 1 9 8 8 from the

taxpayer requesting that an extension f tlme be and a remission of penalties be granted.

e. the guidelrnes laid down by the

I Commrssroner of Taxatron as set out in
Taxaslon aulrngs No.2091.

The reasons for the decrsron not to grant an extension of tlme pursuant to sectron 206 of the Act were:

I

f the taxpayer rn hrs request for an

extenslon of time furnished lnsuffrcient

evldence to demonstrate chat he would be unable to pay his tax liabllitres i5 an

extensron of tine was nos granzed or that

the llkely effect on the taxpayer's

buslness of the requlred payment of tax would endanger or curtarl che taxpayer's busrness;

g. it is one of the responsrbilities of the

Cornmissloner to collectautstandlng taxes within the financial year which the tax liabrlitres falls due. The taxpayer has made no payments slnce May of 1 9 8 7 and

does not proposz to make any payments

uncil February of 1989.

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The reasons for the declslon not to grant remission

of tax pursuant to sub-section 207(1A)	of the Act
are:

h. with the exception of natural disasters

all application for extension of time are

In on event subject to additional tax and

it was considered that the circumstances

in this matter dld not warrant the

granting of a remission of penalties.

i. the	taxpayer did not clearly demonstrate an inability to pay the tax as and when It fell due; and
j.	there were no speclal circumstances which
warrants remission of additional tax
pursuant to sub-sectlon 207(1A) of the
Act.".

On or about 13 June, 1988 the applicant was served with

Bankruptcy Notices dated 23 May 1988 for $210,334.61 and

$117,572.31 taken out by the Deputy Commissloner based upon the

judgment debts relating to hrs outstanding Income tax liability.

On 15 June, 1988 the appllcant's solicitors sent a letter to

the Deputy Commissioner stating that	the applicant was able and
prepared to satisfy the	full amount of the debt on the basis that

an extension of time of eight months to 16 February 1989 were

granted in which to pay the outstanding tax lrability, and that

payment of the outstandlng tax were made by 12 monthly instalments

of $38,146.18 per month €rom 16 February 1989.

On 24 June, 1988 the Deputy Commissioner of Taxation replied

as follows:

"We acknowledge receipt of your letter dated 15

June 1988.
In relation to the contents of the third paragraph

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of your letter, we advise it is our view, on the
advlce of Counsel, that your application f o r an

Order to Review will not	be successful. Moreover,
given that our decrsion was valid, there can	be no
question that the judgments	were obtained on an
incorrect basis or that they cannot form	the basis
of the bankruptcy notices.
Whilst your letter mentions your cllent would	be

prepared to pay a percentage of his monthly

wlnnlngs in any month In which he makes	a profit,
it substantially re-states your client's earlier	: '
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proposal f o r payment. Your letter does not however suggest any basis on which my refusal to accept

your proposal should be reconsidered beyond the

information provided in your letter dated 19

February 1988.

We note that your client has consistently failed to	:
provide	the lnformation concerning his financial

circumstances.".

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When the hearing of this application commenced on	8 August	! .
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1988 the applicant produced a Proflt and Loss Statement for the _ .

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period ended	30 June, 1988 and a Balance Sheet and Assets and	I .
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Liabilitles Statement as at 30 June, 1988.

By the flrst declsion, notice of which was served on 15 March

1988, the respondent refused	to grant the applicant an extension
of tlme of one year to	16 February 1989 in which to pay his

outstanding taxes totalling	$457,753.86, or to allow the payment
of that amount by	12 monthly instalments of	$38,146.15 per month,

the first payment to be made 16 February 1989.

BY the second declsion, notice of which was served on the applicant on 15 March 1988, the respondent refused a request by the applicant to grant a remission of additional tax.

The third decision was the decision to enter judgments

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against the appllcant.

The taxpayer stated in his application that he was aggrieved

by the decisions because:

( i ) he does not have sufflcient funds to pay all o r any

part of his outstandlng Income	tax liability of
$457,753.86;

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(il)    the respondenc's decisions have the effect of making the applicant insolvent;

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(iii) the respondent's decisions place In jeopardy the

applicant's livelihood as a bookmaker, and

(iv)   unless the applicant is able to remain solvent and

continue his livellhood as a bookmaker, he will not be

able to earn sufflclent income to repay his tax debt.

The applicant claimed that a breach of the rules of natural

justlce occurred in connection wlth the making	of the decisions
challenged by him. In my opinion, he has failed to substantiate
this claim. Throughout the long history	of the assessments and

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the dLscussions whlch preceded and followed them, the applicant,

through his professional advisers had ample opportunity	to make
any representations to the respondent which	he or they thought

fit. I am unable to discern any element of unfairness in the

course which the matter took whlch could found a conclusion that

there was any denial of natural lustice.

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The applicant has failed to establish that the respondent

took any irrelevant considerations into account, r failed to take

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into account any consideration which he was bound to take into

account. (See Peko-Wallsend Case 162 C.L.R. 24, per I4ason J. at

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p.39). On the contrary, in my opinlon, the respondent gave

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patient attention to the considerations whlch were relevant to the

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i	exercise of his statutory discretion and	to those conslderations
!	alone.	I can see no foundatlon for the contention that the

i respondent "exercised his power for a pu pose other than purpose

for which the power was conferred", as the appllcant alleged. Nor

did he exercise his discretionary power in accordance with a rule

or pollcy wlthout regard to the merits of the case. The evidence,

in my opinion, justifies the conclusion that he pald careful

attention to the merits of the case.

The applicant submitted that the making of the decisions was

an improper exercise of	the power conferred by the enactments in
pursuance of which they were purported to be made.	Again, the

evidence affords no basis for reaching thls conclusion.

Flnally, the appllcant contended, the exercise of the

respondent's power was so unreasonable that no reasonable person

could have so exercised it. The history of thls case makes it clear, in my oplnion, that there is no foundation for any such conclusion in respect of any of the decislons challenged. They were declsons arrived at by the respondent upon the relevant

facts, without e r r o r of law.

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The court orders that the application be dismissed, with

costs.

I certify that this and the

preceding fourteen (14) pages

are a true copy of the Reasons	I
f o r Judgment herein of the	~<
Honourable Mr. Justice Sweeney	~.

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Dated: 7 October, 1988

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I VG 144 of 1988

Counsel for the appllcant:	Mr. P. Searle
Solicitors for the applicant:	Vorrath Davis & Abercrombie

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Counsel for the respondent:	m. T. North
Solicltors for the respondent:	Australian Government Sollcltor
Dates of hearing: 8,	9 August 1988

: