H.Ray v Deputy Commissioner of Taxation - [2005] FMCA 1892

FEDERAL MAGISTRATES COURT OF AUSTRALIA

H.RAY v DEPUTY COMMISSIONER OF TAXATION

[2005] FMCA 1892

BANKRUPTCY – Application to set aside bankruptcy notices issued to father and to son – default judgment for amount less than that claimed in statement of claim – whether the Court should go behind the judgment – whether respondent erroneously proceeded on the assumption that judgment debts were severable – whether part payment to creditor by third party – whether accord and satisfaction – whether agreement to accept part-payment in full satisfaction.

Bankruptcy Act 1966
Income Tax Assessment Act 1936
Taxation Administration Act 1953

Hirachand Punamchand & Ors v Temple (1911) 2 KB 330
Butler v Fairclough (1970) 23 CLR 78
British Russian Gazette and Trade Outlook Limited v Associated Newspapers Limited (1933) 2 KB 616
Foakes v Beer (1884) 9 App. Cas. 605
Welby v Drake (1825) 1 CNP 557
Cook v Lister (1963) 13 CBNS 543
FCT v Wade (1951) 84 CLR 105
Bellinz Pty Ltd & Ors v FCT 98 ATC 4634
Wren v Mahony (1972) 126 CLR 212
Joosse v Deputy Commissioner of Taxation [2004] FCAFC 245
Corney v Brien (1951) 84 CLR 343
Wolff v Donovan (1991) 29 FCR 480
Re Skaff; Ex parte Farrah Mortgage Services Pty Limited (1993) 41 FCR 331
Day v McLea 22 QBD 610
Bagnall v National Tobacco Corporation of Australia Limited (1934) SRNSW 421

Applicant:

HAROLD JAMES GORDON RAY

Respondent:

DEPUTY COMMISSIONER OF TAXATION

File Number:

SYG2410 of 2005

Judgment of:

Barnes FM

Hearing date:

6 December 2005

Delivered at:

Sydney

Delivered on:

22 December 2005

REPRESENTATION

Counsel for the Applicant:

Mr G. George

Solicitors for the Applicant:

Pateman Legal

Counsel for the Respondent:

Mr A. Iuliano

Solicitors for the Respondent:

Australian Taxation Office Legal Services Division

ORDERS

That the application is dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG2410 of 2005

HAROLD JAMES GORDON RAY

Applicant

And

DEPUTY COMMISSIONER OF TAXATION

Respondent

REASONS FOR JUDGMENT

This is an application filed by Harold James Gordon Ray (the applicant) on 29 August 2005 seeking an order that bankruptcy notice NN2596/05 dated 29 July 2005 which was served on the applicant on 8 August 2005 be set aside. On the same date a similar application was filed by Neil George Ray (the son of the applicant) in proceedings SYG2409 of 2005 seeking that bankruptcy notice NN2598/05 served on him, which is identical in all respects save for the number and the identification of the debtor, also be set aside. The background facts are, relevantly, the same in each matter and the relief sought in each application is the same. Written submissions filed for each party are in identical terms in relation to each proceeding. The proceedings were heard together, evidence in one being evidence in the other.
The background to these proceedings is that on 8 December 2003 the respondent, the Deputy Commissioner of Taxation (the Commissioner), filed statements of liquidated claim in the District Court of New South Wales at Newcastle. Proceedings 685 of 2003 joined Harold Ray as a defendant. In proceedings 691 of 2003 Neil Ray was joined as a defendant. Each statement of claim claimed $384,123.46. On 2 February 2004 the Commissioner obtained judgment in the District Court against Harold James Gordon Ray in the sum of $205,563.54. Bankruptcy notice NN2596/2005 dated 29 July 2005 was based on this judgment debt (plus interest and less a payment made and/or credits allowed since the date of the judgment). It states that the total debt owing is $113,099.84. The applicant now seeks to have this bankruptcy notice set aside. On 2 February 2004 the Commissioner also obtained judgment against Neil George Ray in the sum of $205,563.64 which formed the basis for bankruptcy notice NN2598/2005.

Whether any debt owed to the respondent was a joint obligation

The first basis on which application is made to set aside the bankruptcy notice is a contention that the Court should go behind the default judgment to see whether there is in truth and reality a debt due to the respondent. It is also contended that any debt owed to the respondent is a joint obligation and that the respondent may have erroneously proceeded on the assumption that the judgment debts were “several” obligations.
The Court has power to go behind a judgment on which a bankruptcy notice is founded in an application to set aside the notice (Wren v Mahony (1972) 126 CLR 212). However sufficient reason must be shown before a Court will do so. (See Joosse v Deputy Commissioner of Taxation [2004] FCAFC 245). It will not be done as a matter of course (Wren v Mahoney at 224 per Barwick CJ). There is nothing in this case to suggest that the judgment was obtained by fraud or collusion, that there was a miscarriage of justice, that the debtor was not served with the originating process or that there was an unfair compromise. This is not a case in which previously unobtainable evidence is now available.
It is the case that if a judgment has been obtained by default the Court will more readily look behind it to see if, on investigation, there is a real debt (Corney v Brien (1951) 84 CLR 343). However it is relevant to have regard to whether the debtor (in this case either debtor) has attempted to have the judgment set aside. There is no evidence of any such attempt. Nor is there any explanation for the absence of such an attempt (see Wolff v Donovan (1991) 29 FCR 480 per Lee and Hill JJ at 486).
It is also relevant that there is authority to the effect that the Court is not concerned with the sufficiency of pleading, discovery or proof in the judgment court provided it is satisfied that there is a debt and it arose on the same general basis as the judgment was obtained (Re Skaff; Ex parte Farrah Mortgage Services Pty Limited (1993) 41 FCR 331 and Corney v Brien).
In this instance the applicant has not established that the circumstances are such as to warrant the exercise of the discretion to go behind the judgment debt.
The applicant’s submission is based on the difference between the amount sought in the statement of claim and the amount for which judgment was entered and suggested inaccuracies and omissions in the statement of claim. The statements of claim filed in the District Court each allege that the debt owed was $384,123.46, being an amount said to be made up of the total of moneys withheld pursuant to Division 12 in Schedule 1 to the Taxation Administration Act 1953 amounting (after payments) to $205,100.54 and deductions of instalments of tax made for the purposes of the Income Tax Assessment Act 1936 which were not paid amounting (after deduction of payments) to $179,022.92 together with interest and costs. However the certified copy of the judgment obtained in the District Court on 2 February 2004 reveals that judgment was entered for an amount of $205,563.54 (consisting of $205,100.54 on the claim and $463 for costs).
The applicant contends that given this “apparent irregularity” the Court should exercise its discretion to go behind the judgment and that it appeared likely that the judgment debts had been split between the two debtors contrary to s.222AOB of the Income Tax Assessment Act 1936 which, it was said, makes it clear that each director of a company is liable to pay (by way of penalty) the unpaid amount of a company’s liability. It was contended that the claim could not be split as the respondent had attempted to do because each applicant’s obligation was to pay the full amount owed. On this basis it was argued that the bankruptcy notice was invalid because the applicant owed no debt as alleged.
In oral submissions it was contended for the applicant that a debtor receiving the bankruptcy notice specifying an amount which was less than the amount claimed in the statement of claim as the amount of judgment or order would be confused. It was also suggested that if the Court went behind the judgment it could be seen that 2 of 25 entries detailing amounts withheld for the purposes of Division 12 in Schedule 1 to the Taxation Administration Act 1953 referred to dates which may not be in accordance with ss.16-75(2) and (2A) of subdivision 16-A of Part 2.5 of Schedule 1 to the Taxation Administration Act 1953 as the due dates specified were neither the 21^st or 28^th of the month as that Act required. It was also submitted that the absence of any reference in the statement of claim to s.222AOE of the Income Tax Assessment Act 1936 invalidated the whole proceeding on which the judgment was obtained.
I am not persuaded by these submissions. The debt relied on as the basis for each of the bankruptcy notices is a net debt of $113,099.84. As is made clear in the schedule to the bankruptcy notice, this amount is calculated by reference to the amount of the judgment obtained in the District Court, which the certified copy of judgment states was $205,100.54 on the claim and $463 for costs. To this amount was added interest of $15,326.47. An amount of $107,790.17 was deducted being payments made and/or credits allowed since the date of judgment or orders. No issue is taken with the calculation of these figures. The fact that the statement of claim sought an amount greater than the amount for which judgment was entered does not give rise to an ‘irregularity’ as contended. There is nothing in the material before me to establish or suggest that the judgment debt in the respective bankruptcy notices was understated. There is no irregularity as between what is stated in each of the bankruptcy notices and the amounts specified as the respective certificates of judgment attached to each bankruptcy notice.
Even if there is some substance in the contentions about the due dates in the tables of withheld amounts, it would only support a finding that the amount claimed should be reduced. However, the amount for which judgment was obtained was not the full amount claimed in the statement of claim and is less than the amount calculated without the particular transactions with which the applicant now seeks to take issue.
The absence of a reference to s.222AOE in the statement of claim is not a reason for going behind the judgment. Nor does it support the applicant’s contentions in some other way. Section 222AOE requires the Commissioner to give 14 days notice before being entitled to recover a penalty. The statement of claim stated quite plainly that s.222AOB, which imposes obligations on directors in a manner specified in paragraph five of the statement of claim, was not complied with. In paragraph eight of the statement of claim there is specific reference to s.222AOC of the Income Tax Assessment Act 1936 which provides for a penalty for directors if section 222AOB is not complied with. This potential liability is spelt out quite clearly to be a penalty equal to the unpaid amount of each of the amounts withheld. Each penalty is said to be due and payable and the defendant liable to pay the “total sum” of the penalties, which is $205,100.54. There is also a reference to s.222AOC in paragraph 16 of the statement of claim which again spells out the director’s liability to pay a penalty equal to the unpaid amount of each of the deductions, the fact that each penalty is due and payable and that the defendant is liable to pay the “total sum” of the penalty which is $179,022.92. Each statement of claim then claims the total of both penalties. The manner in which the liability of the defendant is described in the statement of claim and the other matters raised do not constitute a ground for going behind the judgment.
Nor do these concerns establish that the bankruptcy notice is misleading. The difference between the amount sought of the statement of claim and the amount in the judgment debt is not a reason to go behind the judgment. It has not been established that the judgment debt has or may have been split. It is clear and not disputed that s.222AOC makes each person who was a director liable to pay to the Commissioner by way of penalty an amount equal to the unpaid amount of the company’s liability in each of the manners specified in that section. (Also see s.222AOH). The statement of claim is consistent with the framework provided for in the Income TaxAssessment Act 1936 and there is nothing to suggest that the respondent erroneously proceeded on the assumption that the judgment debts were several obligations as contended. The issues raised by the applicant do not support any argument that the judgment was obtained through an error of law resulting in a miscarriage of justice or that the debtor had a good defence as a matter of law.

Whether the debt was understated

It was also submitted that the respondent understated the debt in the bankruptcy notice and that this of itself was a defect warranting setting aside of the bankruptcy notices. This is not established. As indicated above, the relevant debt is the judgment debt together with interest and less amounts paid and there is nothing to suggest that there is any error in the manner in which that is stated in the bankruptcy notice. The Income Tax Assessment Act 1936 gives the Commissioner power to recover a penalty from each director and this is what the Commissioner has sought to do. The fact that the judgment against each director was for an amount less than that claimed in the statement of claim does not establish error or a basis to set aside the bankruptcy notice as contended. Having obtained judgment for specified amounts against each of the directors the respondent has properly given credit to each director for the amount paid (see s.222AOH). It has not been established that the bankruptcy notice is defective in any way, let alone in a substantial way or in a manner capable of causing substantial injustice.

Whether Commissioner precluded at law from recovering the balance of the judgment debt

As elaborated upon in oral submissions the main ground relied on in support of the application to set aside the bankruptcy notice is a contention that the respondent is precluded at law from recovering the balance of the judgment debt. It was submitted that the evidence before the Court established that Ms Christine Ray, the daughter of Harold Ray and sister of Neil Ray, had paid the respondent $105,000 by cheque and that this sum had been received by the respondent and applied to reduce the judgment debt. In a letter addressed to an officer of the respondent dated 22 April 2004 Ms Ray enclosed a cheque for $105,000. It was said that she made it clear that the cheque was tendered as “full and final payment” for the debt and that acceptance by a creditor of part-payment of a debt in full settlement was a good defence to the creditor’s action for any balance (see Hirachand Punamchand & Orsv Temple (1911) 2 KB 330) because if the creditor was allowed to recover the balance it would be a fraud on the creditor’s part or a breach of contract. It was submitted that the payment of the $105,000 was made by a third party being a person other than the relevant taxpayers. In oral submissions it was contended that there had been accord and satisfaction. It was said that each of the bankruptcy notices was invalid because Harold and Neil Ray owed no debt as alleged.
The applicant’s primary submission is that an accord and satisfaction is evident from the affidavit evidence of Ms Ray and the copy of her letter to an officer of the Australian Taxation Office dated 22 April 2004 annexed to that affidavit. The affidavit records that Ms Ray’s father, Harold Ray, sought her help in relation to meeting the judgments against himself and his son and that Ms Ray told him that she had decided that she could provide money for the tax office debt, but not the full amount of the debt. She said that she could help with $105,000 and “I would want a mortgage over the house, though.” She stated that her father thanked her and said “Yes, I’ll give you the mortgage.” According to Ms Ray her brother Neil Ray thanked her for the help, suggested she write to the tax office but that he told her that he did not want her to be liable for any more and that the payment of $105,000 must discharge the debt in full as it would not be fair otherwise. She also stated in her affidavit that her father had granted her a mortgage over his home at Muswellbrook.
By letter dated 22 April 2004 Ms Ray wrote to the Australian Taxation Office enclosing a bank cheque for $105,000 (although the bank cheque was dated 24 April 2004). Ms Ray stated in her affidavit that she was informed and believed that this letter with the bank cheque was sent to the respondent by 180 Corporate Pty Limited.
Relevantly, in the letter of 22 April 2004 Ms Ray stated that she was writing “on behalf of my father Harold Ray and my brother Neil Ray” and that she would like to make an offer as full and final settlement for the debt of $205,100.54. She described the personal circumstances of her father and brother. She indicated that she did not want to see her father and brother become bankrupt due to their inability to pay the debt. She then continued:
My offer
As an alternative, conditional upon the ATO agreeing to my offer below, I will provide my father and brother with a loan of $105,000. I will take a mortgage over [the property at Muswellbrook] as security for this loan.
Accordingly, I am offering the ATO, on behalf of Harold and Neil Ray $105,000 as full and final payment for the abovementioned Debt and an agreement on the part of the ATO to give full releases to Harold and Neil Ray in respect of all moneys alleged to be owed. I attach a cheque for that amount. You agree on the banking of this cheque to accept this payment as full and final payment for the abovementioned Debt and to give the requested releases. If you do not agree to my offer please return the cheque forthwith.
Harold Ray gave affidavit evidence that he was informed and believed that on or about 29 April 2004, 180 Corporate Pty Ltd (which he had engaged to assist him with this matter) provided the respondent with the letter from his daughter, Christine Ray dated 22 April 2004. Also annexed to the affidavit of Harold Ray is a letter dated 30 April 2004 from an officer of the Australian Taxation Office writing on behalf of the Deputy Commissioner of Taxation addressed to a Mr Greg Woszozalski of 180 Corporate Pty Limited re Harold and Neil Ray. It referred to his letter dated 29 April 2004 and stated:
The Australian Taxation Office cannot accept an offer for less than the owed debt without the appropriate forms completed with all details. We have retained the payment you have made as part-payment of debt. The balance now owing is with judgment interest calculated to today’s date.
The letter of 30 April 2004 also referred to the Taxation Office’s policy in situations where debtors purported to attach certain conditions to payments or implied that banking of a cheque denoted acceptance of stipulated conditions. The Taxation Office indicated that the banking of a cheque did not bind the Commissioner to the terms stipulated by the debtor and that moneys tendered need not be returned to the debtor. The letter continued that, as discussed by telephone, if an offer of compromise was made it had to be received by the Australian Taxation Office in the appropriate format on application forms that had been sent to 180 Corporate Pty Limited. A further copy of the application forms was enclosed with the letter.
However, it was contended for the applicant that when Ms Ray paid the respondent $105,000 this constituted part payment of the applicant’s debt by a third party such as to constitute an accord and satisfaction or otherwise to bring the circumstances within the principles considered in Hirachand Punamchand & v Temple [1911] 2 KB 330.

An accord and satisfaction is “a contract of compromise where the bargained for consideration is an actual release of a cause of action” (Butler v Fairclough (1970) 23 CLR 78). More generally, as described in British Russian Gazette and Trade Outlook Limited v Associated Newspapers Limited (1933) 2 KB 616 at 643:
Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative.
In Hirachand Punamichand & v Temple the defendant (a British army officer in India) was indebted on a promissory note to the plaintiffs, who were moneylenders carrying on business in India. The plaintiffs were unable to obtain payment of the amounts due to them from the defendant. At the suggestion of the defendant they applied to his father, Sir Richard Temple, for payment. In reply, Sir Richard Temple’s solicitors wrote to the plaintiffs, indicated that they were instructed to offer the sum of Rs1500 (an amount less than the debt) in full settlement, enclosed a draft for that amount and sought that promissory notes be handed over against payment of that sum. The plaintiffs cashed and retained the proceeds of the draft and afterwards brought an action against the debtor for the balance of the debt.
It was held that the creditor’s action against the debtor should fail. Counsel for the applicants in this case suggested that the amount paid by Sir Richard Temple in Hirachand Punamchand was in accord and satisfaction of any debt owed by his son and that the case was authority for the proposition that where there was payment by a third party of a sum less than the debt which was offered in full settlement of the debt, the respondent having retained the sum offered by a third party for satisfaction of the debt and banked it must be taken to have accepted it on the terms on which it was offered. It was conceded that if the Court was not satisfied that there had been payment by a third party then this argument would fail.
It is relevant to have regard to the reasons for judgment in Hirachand Punamchand& Ors v Temple. The judge at first instance had considered whether the effect of the transaction between the plaintiffs and the father was that there had been an accord and satisfaction in respect of the debt due upon the note and concluded that there had not been. The three judges in the Court of Appeal gave varying reasons for finding that the creditors could not maintain an action against the debtor for the balance of the debt – but all involved acceptance that the part-payment had been made by a third party. Vaughan Williams LJ stated at 335 that he was inclined to the view that prima facie “an accord and satisfaction must be by virtue of an agreement made between a person who is under an obligation to another person, which he ought to have and has not performed, and that other person” (and not between one of the parties to a contract and a stranger to the contract). His Honour was nonetheless of the view that as the draft for Rs1500 had been sent to the plaintiffs by the father and retained and cashed by them, the Court ought to draw the conclusion that the plaintiffs agreed to accept it on the terms upon which it was sent. Vaughan Williams LJ observed that none of the plaintiffs were called as witnesses and no evidence was given to negative the presumption which arose from their keeping the draft that the plaintiffs had agreed to take it on the terms upon which it was sent. His Honour considered what defence, if any, could be pleaded by the defendant (the debtor) on this basis, finding that, in the hands of the plaintiffs, the negotiable instrument on which they sued had ceased to be a negotiable instrument. Alternatively, from the moment the draft was cashed by the plaintiffs, a trust was created as between the father and the moneylenders in favour of the former so that any money the moneylenders might receive on the promissory note would be held in trust for the father.
It was suggested that in these circumstances it did not make any difference that the amount of the draft was not the full amount of the promissory note because, as between the father and the moneylenders there was “an agreement by the moneylenders for good consideration to receive that amount in satisfaction of the note, which agreement arose from their having retained and cashed the draft” (at 337). Hence any money recoverable by the plaintiffs would be recoverable by them merely as trustees for the father in circumstances where it was impossible to suppose that the father wished to insist on payment of the note by his son. His Honour left open but did not decide whether in such circumstances the debt “is gone” because it would be a fraud upon the stranger who pays part of a debt in discharge of the whole that an action should be brought for the debt.
Fletcher Moulton LJ held that while the plaintiffs’ action should fail this result may be arrived at by more than one course of reasoning (at 338). His Honour was of the opinion that there must be taken to have been an agreement between the plaintiffs and the father by which the plaintiffs agreed to accept the money sent by him in satisfaction of the note. He noted the absence of oral testimony and found that it appeared clearly from the correspondence that the plaintiffs realised that the father was proposing to settle the whole claim and accordingly asked what amount he was prepared to give. The subsequent offer from the father was clearly made in full settlement of the claim. His Honour found that there was overwhelming evidence of an acceptance by the plaintiffs of the proposal made to them by the father in their cashing the draft and keeping the money, knowing the money was the father’s money and sent to them in full satisfaction. By that transaction the debt on the promissory note became extinct. His Honour suggested at 339 that the effect “of such an agreement between a creditor and a third party with regard to the debt is to render it impossible for the creditor afterwards to sue the debtor for it”.
Fletcher Moulton LJ observed that in Foakes v Beer (1884) 9 App. Cas 605 the doctrine that a debtor cannot discharge himself from his debt by payment of an amount smaller than that of the debt was recognised by the House of Lords “as law of such old standing that it could not be challenged” (and see Day v McLea 22 QBD 610 where a debtor sent a cheque to his creditor for an amount smaller than the debt stating that it was in settlement of the debt. It was accepted. It was held that there was no settlement). His Honour distinguished those cases from the situation before him because he was dealing with the question of the effect of money paid by a third person not money paid by the debtor. He stated at 340:
In such a case there is no difference between payment of the total amount and payment of a portion of it only, so long as it is paid in settlement of the debt. If a third person steps in and gives a consideration for the discharge of the debtor, it does not matter whether he does it in meal or in malt, or what proportion the amount given bears to the amount of the debt. Here the money was paid by a third person, and I have no doubt that, upon the acceptance of that money by the plaintiffs with full knowledge of the terms on which it was offered, the debt was absolutely extinguished.
Farwell LJ agreed, noting that it was “really immaterial” whether the facts of the case would support a plea of accord and satisfaction because in the events that happened the debt “became extinguished”. His Honour also distinguished Day v McLea as a case in which the debtor himself sent a cheque for an amount smaller than that of the debt to the creditor, and where, there being no consideration for the discharge of the balance of the debt, the creditor could retain the money and sue for the balance. However Farwell LJ stated at 342 that such reasoning did not apply “where the money is sent by a stranger, in which case it can only be accepted on the terms upon which it is sent”.
Whether one considers Hirachand Punamchand v Temple as an application of principles of accord and satisfaction or not, it is clear that the critical issue is whether there is part-payment of the applicant’s debt by a third party. On the evidence before the Court I am not satisfied that the payment of $105,000 made to the Australian Taxation Office by bank cheque dated 24 April 2004 was a payment by a third party such as to bring this case within the principles in Hirachand Punamchand v Temple. Ms Ray wrote to the Taxation Office ‘on behalf’ of her father and brother. There is no suggestion that the respondent initiated correspondence about the debt with her. She offered $105,000 as full and final payment for the debt “on behalf of Harold and Neil Ray”. It has not been established that she acted otherwise than as a conduit between her father and brother and the Commissioner or as agent on their behalf. This conclusion is supported by the fact that she provided the funds to her father and brother by way of a loan to them of $105,000 secured by a mortgage over her father’s property. As she had lent the money to them, it was then Harold and Neil Ray who made the payment to the Commissioner. It was not ‘her money’ in the sense that the money paid in Harachand Punamchand was the father’s money. In such circumstances there was no payment by a third party but rather a payment by Harold and Neil Ray, albeit tendered on their behalf by their daughter and sister, Ms Ray. It is consistent with this interpretation that by taking security in the form of a mortgage over her father’s property Ms Ray put herself in the position of a secured creditor of her father. The principles in Harachand Punamchand do not assist the applicant.
Indeed, even if it could be said that there was a payment by a third party, there are a number of critical differences between the circumstances in this case and those in Hirachand Punamchand’s case. Critically it has not been established that there was an agreement between Ms Ray and the respondent. Contrary to the situation in Hirachand where the moneylenders approached the debtor’s father seeking that he settle his son’s debts, in this instance the Commissioner did not approach Ms Ray or ask her what she was prepared to pay. In Hirachand there was no loan made by the father to the son and nor did the father take any security over the assets of his son. However in this case the ATO was made aware that Ms Ray had made a loan to her father and brother and took security over the assets of her father. Further there was an immediate response from the Australian Taxation Office rejecting the offer as full satisfaction of the debt and stating that any proposition for a compromise would be considered only if it was made in the appropriate manner. Such evidence negatives any presumption that by keeping the cheque the respondent had agreed to take it on the terms on which it was sent. While the respondent retained the payment, it has not been established that by its conduct it accepted any offer by Ms Ray in full satisfaction of the debt. Thus, if contrary to my view, there was payment by a third party, there was no agreement between Ms Ray and the respondent such as to extinguish the debt.
What then is the effect of part-payment of a debt by the debtors? Counsel for the respondent contended that consistent with the rule in Pinnel’s Case (1602 5 Co. Rep. 117a) the part-payment did not relieve the debtors of liability for the balance because there was no consideration for the creditor’s abandonment of the balance (see Foakes v Beer). The rule in Pinnel’s Case is to the effect that where there is a claim for a liquidated sum the liability for which is not in dispute, the acceptance of a smaller sum in satisfaction does not relieve the debtor as there is no consideration for the creditor’s abandonment of the balance. There are a number of qualifications to this rule, one of which relates to part-payment by a third party (see Welby v Drake (1825) 1 CNP 557 and Cook v Lister (1963) 13 CBNS 543 and Hirachand Punamchand v Temple). This case is not within such a qualification.
As was said by Jordan CJ in Bagnall v National Tobacco Corporation of Australia Limited (1934) SRNSW 421 at 426:
Where, however, there is no dispute that one person is liable to pay to another at least a certain sum, and the obligor tenders to the obligee that sum on the footing that it is to be accepted in full satisfaction, the obligee, by taking it with an intimation that he does not accept it in full satisfaction, does nothing wrongful, and does not preclude himself from proceeding to recover debt or damages ultra. This is so in the case of claims to unliquidated sums claimed to be due for breach of contract: Day v McLea (22 QBD 610), as well as to claims for liquidated sums.
Jordan CJ pointed out that it is a question of fact in every case whether the obligee ought in the circumstances be regarded as having accepted the payment on the terms on which it was offered.
In this instance it is clear from the letter dated 30 April 2004 from the Australian Taxation Office to 180 Corporate Pty Ltd that the Australian Taxation Office did not accept the offer of less than the owed debt. There was no agreement between the respondent and Harold and/or Neil Ray or between the respondent and anyone else on behalf of Harold and/or Neil Ray (or indeed between the respondent and Ms Ray) that the respondent would accept the amount of $105,000 in discharge of Harold and Neil Ray’s respective judgment debts. The respondent made its position very clear in the letter of 30 April 2004. It rejected the offer of compromise, informed the Rays’ adviser of its intention to retain the cheque as a part-payment of the judgment debt and invited them to formally make an application to compromise the judgment debt.
In these circumstances the respondent’s retention of the cheque and application of the amount owing in reduction of the debt does not amount to an acceptance of an offer of compromise. The respondent had obtained judgment debts against each of Harold and Neil Ray which have not been set aside. Indeed there has been no application to have either of the relevant judgments set aside. Thus there was at all relevant times no dispute as to each applicant’s liability pursuant to the judgment debt. The fact that the amount of $105,000 was provided through the involvement of Ms Ray does not change this conclusion. There was never an agreement between the respondent and Ms Ray (or between the respondent and either or both of Harold and Neil Ray) that the respondent would accept the amount of $105,000 in discharge of either or both of Harold and Neil Ray’s judgment debts. The letter of 30 April 2004 made it clear that the respondent was not prepared to compromise as proposed and also made clear the basis upon which it retained the cheque.
In order for the applicant to be successful in a plea of accord and satisfaction he must show that there is a contract of compromise where the bargained for consideration is an actual release of the cause of action (Butler v Fairclough). The applicant has not established that such a contract of compromise was concluded between Harold and/or Neil Ray and the respondent or between Ms Ray and the respondent. Further, insofar as the applicants contend (by implication) that the respondent is estopped from denying that the respective judgment debts have been compromised, no declaratory relief to that effect is sought (and see FCT v Wade (1951) 84 CLR 105 and Bellinz Pty Ltd & Ors v FCT 98 ATC 4634 at 4642 suggesting that no conduct on the part of the Commissioner could operate as an estoppel against the operation of the Act).
As the applicant has not established that the Commission is precluded at law from recovering the balance of the judgment debt this basis for the application to set aside the bankruptcy notice must fail.
It has not been established that there is any basis to set aside either of the bankruptcy notices. Accordingly the application must be dismissed.

I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate:

Date: 22 December 2005