FERELLA v Chief Commissioner of State Revenue

[2013] FCCA 1618

FEDERAL CIRCUIT COURT OF AUSTRALIA

FERELLA & ANOR v CHIEF COMMISSIONER OF STATE REVENUE [2013] FCCA 1618

Catchwords:
BANKRUPTCY – Application to set aside a bankruptcy notice and for an extension of time to comply with it – assessment of land tax disputed by the debtors – confirmation of the assessment by the Administrative Decisions Tribunal – application dismissed.

Legislation:

Administrative Decisions Tribunal Act 1997 (NSW), ss.112, 113, 116, 119, 121

Bankruptcy Act 1966 (Cth), ss.40, 41

Land Tax Management Act 1956 (NSW)
Taxation Administration Act 1996 (NSW), ss.86, 89, 96, 103

First Applicant:

Second Applicant:

GUSTAVO FERELLA

NIDA FERELLA

Respondent: CHIEF COMMISSIONER OF STATE REVENUE

File Number: SYG 1517 of 2012

Judgment of: Judge Driver

Hearing date: 14 October 2013

Delivered at: Sydney

Delivered on: 14 October 2013

REPRESENTATION

Counsel for the Applicants: Mr J T Svehla

Solicitors for the Respondent:

Mr A Ng

Matthews Folbigg Pty Ltd

ORDERS

1. The application filed on 12 July 2012 is dismissed with costs.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 1517 of 2012

GUSTAVO FERELLA

First Applicant

NIDA FERELLA

Second Applicant

And

CHIEF COMMISSIONER OF STATE REVENUE

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

1. I have before me an application filed on 12 July 2012, challenging bankruptcy notice BN9059 of 2011 (bankruptcy notice) issued on 2 December 2011 and also seeking an extension of time to comply with it.  The following statement of background facts relating to this matter is derived from written submissions filed in court by leave today by the respondent the Chief Commissioner of State Revenue (Chief Commissioner). 

2. On 27 October 2011, the Chief Commissioner obtained judgment against the applicants in District Court of NSW proceedings No 2009/332602 (District Court Proceedings) for the recovery of land tax and penalties in respect of properties owned by the applicants, pursuant to the Land Tax Management Act1956 (NSW) and the Taxation Administration Act1996 (NSW) (Taxation Administration Act) (District Court Judgment).

3. The bankruptcy notice issued by the Official Receiver to the applicants, to which these proceedings relate, is based on the District Court Judgment.

4. On or about 6 December 2011, the applicants lodged an objection with the Chief Commissioner pursuant to ss.86 and 89 of the Taxation Administration Act claiming an entitlement to a primary production exemption for the land tax years 2007 to 2011 in respect of properties owned by the applicants, which, if allowed would have affected the land tax assessments forming the basis of the District Court Judgment (“the objection application”).

5. On or about 21 March 2012, the Chief Commissioner disallowed the objection application (“the objection decision”).

6. On or about 23 May 2012, the applicants commenced proceedings in the Administrative Decisions Tribunal (ADT) pursuant to s.96 of the Taxation Administration Act seeking a review of the objection decision (ADT Proceedings).

7. On 22 June 2012, the applicants were deemed to be served with the bankruptcy notice.

8. On 12 July 2012, the applicants filed an application in these proceedings seeking, among other orders, that the bankruptcy notice be set aside pursuant to ss.40(1)(g), 41(5), 41(6B) and 41(7) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act).

9. The proceedings were listed before this Court on 30 July 2012. On the application of the applicants, the proceedings were adjourned to 20 August 2012 to allow the applicants to file evidence in relation to any grounds for their application.

10. The proceedings were next listed before the Court on 20 August 2012. On this occasion, the proceedings were listed for hearing on 11 December 2012 and the following additional orders made:

    2.The applicants are to file and serve on the respondent any affidavit evidence on which they wish to rely by 10 September 2012.

    3.The respondent is to file and serve on the applicants any affidavit evidence on which it wishes to rely by 1 October 2012.

    4.The applicants are to file and serve on the respondent any evidence in reply by 15 October 2012.

    5.The applicants are to file and serve on the respondent written submissions not less than 14 days prior to the hearing date.

    6.The respondent is to file and serve on the applicants written submissions not less than 7 days prior to the hearing date.

    7.Parties have liberty to apply for further orders or directions on three days’ notice.

    8.Costs of today are reserved.

11. On or about 7 November 2012, the ADT Proceedings were listed for hearing on 22 February 2013.

12. On 3 December 2012, the hearing date in these proceedings on 11 December 2012 was vacated by consent and the matter was relisted for hearing on 12 April 2013, a date after the hearing of the ADT Proceedings. 

13. On 22 February 2013, the ADT Proceedings were heard before Judicial Member J Block.

14. On 27 February 2013, Judicial Member J Block handed down his decision affirming the objection decision (ADT decision).

15. On 26 March 2013, on the application of the applicants, the District Court granted an order for payment of the District Court Judgment by way of instalments (the instalment order).

16. On 2 April 2013, the applicants filed a Notice of Appeal with the ADT Appeal Panel (proceedings no 139014) pursuant to s.112 of the Administrative Decisions Tribunal Act 1997 (NSW) seeking an appeal of the ADT decision (“the Appeal Proceedings”). The Appeal Proceedings were listed for hearing on 20 August 2013.

17. On 4 April 2013 the Chief Commissioner filed a notice of motion in the District Court objecting to the instalment order. This was later withdrawn.

18. On 12 April 2013, these proceedings were adjourned to 14 October 2013 to allow the determination of the Appeal Proceedings.

19. On 20 August 2013, the Appeal Proceedings were heard before Deputy President RL Seiden, Judicial Member A Verick and Non-Judicial Member J Schwager.

20. On 3 October 2013 the Appeal Panel handed down their decision in the Appeal Proceedings dismissing the appeal (Appeal Decision).

21. I decided today to proceed with the hearing of the application to set aside the bankruptcy notice.

22. The matter has been before me on several occasions, most recently on 12 April 2013. At that time, I determined that, to the extent that the application depended upon s.41(7) of the Bankruptcy Act, there was no substance to it and the application should be struck out. I also determined, however, that there was a real issue, that being whether the taxation assessment made by the Chief Commissioner was properly made and, by extension of reasoning, whether the taxation liability was a real one or not.

23. The judgment debt could not itself be attacked and the applicants chose to challenge the assessment of tax in the ADT.  That merits review was unsuccessful but the applicants had sought to appeal to the ADT Appeal Panel on questions of law.  Given the significance of the issue at stake, I was persuaded to extend time for compliance with the bankruptcy notice until today and adjourn the hearing of the application until today.

24. I received today the affidavit of Rebecca Sullivan, made on 11 October 2013.  That affidavit attaches the Appeal Decision, handed down on 3 October 2013.  That decision affirms the decision of the ADT at first instance.  In essence, the ADT has rejected the proposition that the dominant activity of the land in question was primary production and found that that activity was incidental.  The ADT has affirmed the core reasoning in the taxation assessment that the dominant income-earning use of the land was the derivation of rental income.

25. I also have before me the affidavit of Geoffrey Brown, made on 27 July 2012 and relied on by the Chief Commissioner.  The Chief Commissioner’s submissions usefully detail the legislative provisions in issue. 

    Section 40(1)(g) of the Bankruptcy Act 1966 (“the Act”) provides that:

    Acts of bankruptcy

    (1) A debtor commits an act of bankruptcy in each of the following cases:

    …

    (g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

    (i)      where the notice was served in Australia--within the time specified in the notice; or

    (ii)     where the notice was served elsewhere--within the time fixed for the purpose by the order giving leave to effect the service;

    comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;

    Section 41(3) of the Act provides that:

    (3) A bankruptcy notice shall not be issued in relation to a debtor:

    (a) except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40(1)(g) or a person who, by virtue of paragraph 40(3)(d), is to be deemed to be such a creditor;

    (b) if, at the time of the application for the issue of the bankruptcy notice, execution of a judgment or order to which it relates has been stayed;

    Section 96 of the Taxation Administration Act 1996 (“the TAA”) provides:

    Review by Administrative Decisions Tribunal

    (1) A   taxpayer may apply to the Administrative Decisions Tribunal for a review of a decision of the Chief Commissioner that has been the subject of an objection under Division 1 if:

    (a)the taxpayer is dissatisfied with the Chief Commissioner’s determination of the taxpayer’s objection, or

    (b) 90 days (not including any period of suspension under section 92) have passed since the taxpayer’s objection was served on the Chief Commissioner and the Chief Commissioner has not determined the objection.

    Section 103 of the TAA provides:

    Recovery of tax pending review

    (1) The fact that an application for a review is pending does not in the meantime affect the assessment or other decision to which the application for review relates and tax may be recovered as if no review were pending.

    (2)Nothing in this section affects any power of a court or tribunal to which an application for review under this Part is made (or can be made) to grant a stay under any other law of any such assessment or decision.

    Section 112 of the Administrative Decisions Tribunal Act 1997 (“the ADT Act”) provides that:

    Appealable decisions of the Tribunal

    (1) For the purposes of this Part, an “appealable decision” of the Tribunal is a decision of the Tribunal (or a decision that is taken to be a decision of the Tribunal) made in proceedings for:

    (a)an original decision where the enactment under which the Tribunal has jurisdiction to make the decision expressly provides that the decision may be appealed to an Appeal Panel under this Part, or

    (b)a review of a reviewable decision.

    Section 113 of the ADT Act provides that: 

    Right to appeal against appealable decisions of the Tribunal

    (1) A party to proceedings in which an appealable decision of the Tribunal is made may appeal to the Tribunal constituted by an Appeal Panel.

    (2) An appeal under this Part:

    (a)may be made on any question of law, and

    (b) with the leave of the Appeal Panel, may extend to a review of the merits of the appealable decision.

    …

    (3)    An appeal under this Part must be made:

    (a)within 28 days after the Tribunal gives the party oral reasons or written reasons for the appealable decision (whichever is the later), or

    (b)within such further time as the Appeal Panel may allow.

    (4) An appeal under this Part is to be made in the manner prescribed by the rules of the Tribunal.

    Section 116 of the ADT Act provides that: 

    Appeal does not stay decision

    Subject to any interlocutory order made by the Appeal Panel, an appeal under this Part does not affect the operation of the decision concerned or prevent the taking of action to implement the decision.

    Section 119 of the ADT Act provides that: 

    Right of appeal to Supreme Court

    (1)  A party to proceedings before an Appeal Panel of the Tribunal may appeal to the Supreme Court, on a question of law, against any decision of the Appeal Panel in those proceedings.

    (1A) Despite subsection (1), an appeal does not lie to the Supreme Court against any of the following decisions of the Appeal Panel except by leave of the Supreme Court:

    (a)  an interlocutory decision,

    (b)  a decision made with the consent of the parties,

    (c)  a decision as to costs.

    (2)  The Appeal Panel (or any of the members constituting the Appeal Panel) cannot be made a party to an appeal under this section. Rules of court made under the Supreme Court Act 1970 may make provision for the parties to any such appeal (including the designation of a respondent where the only party in the proceedings from which the appeal is brought was the appellant).

    (3)  An appeal by a person under this section must be made:

    (a)  within such time and in such manner as is prescribed by rules of court made under the Supreme Court Act 1970, or

    (b)  within such further time as the Supreme Court may allow.

    Section 121 of the ADT Act provides that: 

    Appeal does not stay decision

    Subject to any interlocutory order made by the Supreme Court, an appeal under this Part does not affect the operation of the decision appealed against or prevent the taking of action to implement the decision.

26. The present position is that the applicants are contemplating the prospect of a further appeal on a question of law to the Supreme Court.  There is approximately a week remaining available for them to exercise that right.  The most that could be said is that, at best, the prospects of such an appeal would be uncertain.

27. In my view, the Appeal Decision has resolved the issue of the correctness of the assessments objected to by the applicants.  The possibility of a further appeal on a question of law to the Supreme Court is not, in my view, a reason justifying a further extension of time for compliance with the bankruptcy notice.  Neither does the possibility that a legal issue might be identified by the Supreme Court justifying a further assessment of taxation liability provide a basis for continuing to doubt the debt relied upon by the Chief Commissioner in these proceedings.

28. I understand that the taxation liability is currently being paid pursuant to the instalment order.  While the debt remains very substantial, I understand that between $24,000 and $30,000 has been paid by instalments.  The instalment order does not support the applicants in their challenge to the bankruptcy notice because it was obtained after the bankruptcy notice was issued and served.  If this Court were called upon to consider a creditor’s petition, there would be an issue of solvency to consider, namely, whether the debtors were able to pay the debt within a reasonable period pursuant to the instalment order or otherwise.  That is not a matter that requires consideration at this point.

29. Having given the debtors the opportunity to test the taxation assessments in the ADT, there no longer remains any proper basis for the court to extend time for compliance with the bankruptcy notice or further entertain the challenge to it.

30. I will order that the application filed on 12 July 2012 be dismissed with costs.

I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Judge Driver

Associate: 

Date: 15 October 2013